So here's the story:
I sold one of my house (We'll call this house #1) a year ago, which I've lived in it for 2 years and was rented out for 2 years. While that house #1 was rented out I had another house (I own it; We'll call this House #2) that I moved into and has been my primary resident for the last 3 years, I still own House #2, but I've moved again and House #2 is now rental. Now house #3 is my primary resident for almost 1 year.

I was able to exclude gain House #1 , in 2005. Now I want to sell House #2 this year and exclude gain. Is it possible? I've lived in House #2 for 2 years. From what I've read so far, the article explains capital gain to someone who has 1 house and lived in it for two years.
I don't want to do a 1031 exchange on House #2 because I don't to own a $1m+ house for 5 years.

So my big question can I sell house #2 and exclude gain or do I have to wait till 2007, if so does it have to exacally 2 years or can I sell it at the begining of 2007.

Best advise I can give is speak with a tax professional

I know that's non comittal, but I am not a tax professional and I believe very few if any on this board are qualified to give tax advise.

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I'm not Jennifer... I'm Jessie : Panama City Beach Real Estate, Panama City Real Estate and Panama City Beach Condos

I've already done that 2 out of 4 said I can sell, but the other 2 said no. I've also spoke to someone from the IRS but she didn't make much sense either.

It's not surprising that there are various opinions.

It's been my experience, when dealing with anything tax related, it is open to interpretation since Law is an interpretive entity and like Medicine practitioners are only 'practise' at it. Seems they never really get to be 'professional' only 'experienced'.

The 2 of the 4 who said you can sell, are they qualified IRS certified accountants and do they have experience working with real estate?

What I would do is verify they are IRS certified accountants and follow their instructions.

Personally, I don't speak with the IRS directly, ever! My accountant always does the talking for me

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I'm not Jennifer... I'm Jessie : Panama City Beach Real Estate, Panama City Real Estate and Panama City Beach Condos