Hi Jim,This happens in many different circumstances, so calm and power on!!

The mechanism for avoiding double taxation in these circumstances is usually a tax credit for taxes paid to another state.

My circumstances are a little out of the ordinary. 

Sierra,This is why we require tenants to have a renters policy.In this circumstance, I would probably split it down the middle.

You neglect to share where you are located, which will make a BIG difference on how this gets resolved.  

@Josh Detweiler be sure not to confuse deferred maintenance with property neglect.

However, after researching it and having her actually do her homework it came to light that divorce, separation, health issues, moving for a job, and a few other extenuating circumstances were the only exemptions for no paying capital gains before 2 years of having it as a primary residence. 

We lived in it while fixing it up and planned to remain in it as our family home but circumstances changed and we ended up selling it for a great price and buying into our next property.

As a licensed CA agent, the Seller probably has a duty to disclose that they are a licensed agent.You didn't know they were an agent when you submitted your offer, so you didn't include it in your offer.In their counteroffer, they are adding a disclosure into the agreement that they are an agent, as they are presumably required to do by the state of California.While I don't know the whole circumstances, nor am I licensed in California, that seems fairly normal to me.

I was en route to Law School as recently as 2 weeks ago but varying circumstances has led me to decline that option as I believed it would ultimately slow down my true goal, which was investing into real estate rental properties as soon as possible.