The reduced exclusion calculation is a proration of the full-exclusion, using the smaller of the months (or days) the residence meets the ownership & use requirements or the months (or days) since the last sale that the taxpayer used a Sec 121 exclusion.  So for 16 months the exclusion would be $500,000 x 16/24 = $333,333.  That's why the second gain was excluded.

Section 121 is an exclusion, not a deferral.  So the basis is not affected by prior sales.