@sharonli1138 wrote:
my understanding is that the rule actually extends to 15 years for the military.
I moved out of both due to military re-assignment).
The gains for Property #1 would be significantly bigger, so would I need to sell that one first?
First, just to clarify, it is not an automatic 15 years. It is UP TO 15 years. It is 5 year plus the number of years you were in the military during that time. So if you were in the military for 3 years, then the rule would be 2 out of 8 years. Based on everything else you said it seems like you probably meet that criteria, but I just wanted to clarify that.
You are right, the usual rule is that you can only "exclude" one house every two years. But it not a mandatory thing, so if you are selling both houses that qualify, you can choose whichever one you want to use it on. It doesn't matter which one is sold first.
It is a bit complicated (and somewhat against logic), but it sounds like you might actually qualify for an exclusion for both houses. Sort of. In this scenario, you would want to sell the bigger profit one first (house #1) to receive the full exclusion. For the second house, assuming you got your reassignment when you lived there and it was at least 50 miles further away, that would qualify as a "job change". The bizarre and illogical part is the "job change" from the house #2 was BEFORE the your "job change" from house #1. But the way I read the Regulations, it still qualifies under the "job change" rules.
For a "job change", you can get a prorated exclusion. As I mentioned above, the 'usual' rule is that it must be at least 2 years (24 months ... note this "24" for the next calculation) apart to exclude a home. So because of the "job change", you can prorate it. If the sale is 3 months apart, your maximum exclusion would be 3/24ths of $250,000. As I said before, you would want to sell the first one first, because you probably don't want to prorate the higher-profit house; you would want to prorate the lower-profit house.
