SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

AV HOMES, INC. AND SUBSIDIARIES

(Dollars in thousands)

	Balance at Beginning of Period		Charged to Costs and Expenses			Deduction/ (Addition)			Balance at End of Period
Year ended December 31, 2011:
Deducted from asset accounts:
Deferred gross profit on home site sales	$	22	$	2	(1)	$	(19	)	$	5
Allowance for doubtful accounts		1,217		421			(130	)		1,508
Valuation allowance for deferred tax assets		22,522		68,961	(4)		-			91,483
Total	$	23,761	$	69,384		$	(149	)	$	92,996

Year ended December 31, 2010:
Deducted from asset accounts:
Deferred gross profit on home site sales	$	22	$	-		$	-		$	22
Allowance for doubtful accounts		1,192		144	(1)		(119	) (3)		1,217
Valuation allowance for deferred tax assets		10,419		12,103	(4)		-			22,522
Total	$	11,633	$	12,247		$	(119	)	$	23,761

Year ended December 31, 2009:
Deducted from asset accounts:
Deferred gross profit on home site sales	$	23	$	-		$	(1	) (1)	$	22
Allowance for doubtful accounts		747		499	(2)		(54	) (3)		1,192
Valuation allowance for deferred tax assets		19,567		(9,148	) (4)		-			10,419
Total	$	20,337	$	(8,649	)	$	(55	)	$	11,633

(1) (Credit) charge to operations as an (increase) decrease to revenues.

(2) Charge to operations as an increase to real estate expenses.

(3) Uncollectible accounts written off.

(4) In accordance with ASC 740, Avatar evaluates its deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. During 2008, we established a valuation allowance against our deferred tax assets. Based on our evaluation during the year ended December 31, 2008, we recorded an additional valuation allowance against the deferred tax assets generated as a result of our net loss during the year ended December 31, 2008. Our cumulative loss position over the evaluation period and the uncertain and volatile market conditions provided significant evidence supporting the need for a valuation allowance. During the first nine months of 2009, we recognized an increase of $9,522 in the valuation allowance. However due to the new federal tax legislation as discussed above, we decreased the valuation allowance for the year ended December 31, 2009 by $9,148. As of December 31, 2009, our deferred tax asset valuation allowance was $10,419. During the year ended December 31, 2010 we recognized an increase of $12,103 in the valuation allowance. As of December 31, 2010, our deferred tax asset valuation allowance was $22,522. During the year ended December 31, 2011 we recognized an increase of $68,961 in the valuation allowance. As of December 31, 2011, our deferred tax asset valuation allowance was $91,483. In future periods, the allowance could be reduced based on sufficient evidence indicating that it is more likely than not that a portion of our deferred tax assets will be realized.