There might be extenuating circumstances where you wouldn't have to pay capital gains. I've worked as a realtor here in California, and have dealt with clients that bypassed paying capital gains even though they didn't make the 2 year residency in their house.
I'd check with your accountant to be sure. If you are planning on building another house, wouldn't you stay in your current home until it is built? Maybe it would eat up most of the second year?
Thanks! We will be building our own house, but our one year anniversary of being in this house is not until May. My husband is a builder, so at most it will take 4 months. We can push it off for a bit if we must, but def. not a year.
sounds like you would be able to still exclude some gains, the max is $250k, so if you don't meet the full 2 yr test you can still probably exclude a prorated portion