Capital gains tax on sale of 2 homes?

[Mark Ashton]

Hello,

I'm looking for help evaluating tax strategies for selling my two homes. Here's my situation: We own a home we lived in for 18 years (2000-2018). We moved out of that house (House #1) in summer of 2018 and are now renting it out for 2 years. We would like to sell it and downsize once the 2 year lease is up in 2020. We will have lived in it as our primary residence for at least 2 of the last 5 years when we sell it.

Last summer we bought and moved into a second home (House #2). Our plan is to live in it for 2 years, fix it up and then also sell it in 2020.

I understand capital gains can be avoided by living in a home 2 of the last 5 years, but I don't know how that works when selling two homes. We will have lived in both House #1 and #2 for 2 of the last 5 years, but can I avoid capital gains on both? Or is there a period of time required between using the capital gains exclusion?

House #2 will have much less capital gains on it, so if I have to pay capital gains I'd prefer to pay it on that home.

Thanks in advance for help-