Lease option needs to be treated as purchase this year

[Toben B.]

I can find many articles on how to structure a lease option so it does not look like a disguised sale, however I want my lease option to be treated as a sale in the year 2012.

Background: My personal house is for sale, and I have rented it out for nearly 3 years and placed it on the market. The only buyer wants to do a lease option, but I need to sell in the year 2012 so I don't pay capital gains on a house I lived in. (IRS rule is you have to live in a house 2 of the last 5 years to not pay capital gains on the sale of you personal home). The buyer has a credit problem and will put down a significant deposit, pay 6% etc and will get a new loan in 2-4 years. I owe some on the house so I can not create a mortgage on the property.

The IRS has come after some people and said their lease option was a disguised sale. I want the IRS to treat this as a clear sale now so I avoid capital gains entirely. No capital gains if I can sell in 2012, vs I have to pay capital gains if it sells 2013 or later.

How do I do this?