As I knit the leg of my sock, I resorted the stitches to make it easy to have sts ready for the P2tog to the left of the lace panel. Please sort your stitches so that the lace panel is at the far left side of what will be the instep needle — with 29 stitches. The remaining 28 stitches will first be the heel and then the sole stitches. Knit to the end of the 28 sts and you will be ready to begin the heel.
HEEL: This is a garter stitch heel with short rows. You will be wrapping stitches, but because this is done in Garter Stitch, there is no need to unwrap the stitches later. You will be working right side and wrong side rows back and forth across the 28 heel stitches only for this section.
R1: (WS) Turn so the wrong side of the 28 sts is facing you. Slip one st and knit to the last of the 28 sts. Slip this last stitch to the right hand ndl, bring yarn to the left around the st to the side of the work facing you and then slip the st back to the left hand needle. (Stitch Wrapped). Turn work.
R2: (RS) Knit to the next to the last of the 28 sts. Slip this stitch to the right hand needle, bring yarn forward, and slip the stitch back to the left hand needle. Turn work.
R3: (WS) Knit to one stitch before the previously wrapped stitch, sl st to RH ndl, yarn forward, sl st back to LH ndl, turn work.
R4: (RS) Knit to one stitch before the previously wrapped stitch, sl st to RH ndl, yarn forward, sl st back to LH ndl, turn work.
Repeat R3 and R4 until there are 12 UNWRAPPED STS in the very center of the heel. R3 will be the final row when 12 unwrapped sts remain. In the photo below you can see the 12 unwrapped stitches in the center and 9 stitches on either side. You are now halfway through the heel.
R5: (RS) knit to first single wrapped st and wrap it a 2nd time, turn work.
R6: (WS) knit to first single wrapped st and wrap it a 2nd time, turn work.
Repeat R5 and R6 seven times more (complete them a total of eight times).
Next RS row: knit to and including the last stitch before the instep.
Pick up stitch two sts below st on needle as indicated in photograph above. Purl this together with the first stitch of the instep (avoids a gap). Work across instep in pattern as set without any increases or decreases on either side of the lace panel. Knit across all heel stitches, which now become sole stitches. Work across the instep once more in pattern as set without any increases or decreases on either side of the lace panel. Heel complete.