Long story - thanks to all that can assist. I'm totally devastated at what's happening.

About 2 months ago I acquired an already established (for 2+ years) fishtank, 12 gallons. It came with original inhabitants (2 green Chromis). We filled it back up to replace water siphoned for transport and all levels tested perfectly. I added 2 clownfish shortly thereafter and again, everything was stable and all was well.

About 3 weeks ago, I added one more clownfish and there was a battle between 2 of them. Fearing one was going to kill the other, I got a breeder net/clear box and put in the tank. I also purchased a new tank & everything that goes with it and that has been filtering for 2 weeks now, with live sand and live rock. This was done so I could eventually then separate the clowns that weren't getting along and I really liked the whole saltwater hobby.

My story continues having nothing to do with the new tank, sorry for getting off subject.
For background, the salinity of my saltwater is always an even 0.22, no issue there that I know of. While at a pet store I recently got a 5 gallon bucket to assist in water changes. With the bucket came me using the tub to fill it up. After my first day of water changes (done 1-2 times every 2 weeks normally), salinity was perfect, prime was used as always, tested the water that night and ammonia levels had shot up to 1.0ppm. I could not figure out why. One clown died that night. I did a lot of reading, bought some ammomia detoxifier, that did nothing whatsoever. 1 chromis and 1 clown die overnight... Started a new water change the next day, salinity again perfect but then something in me said to check levels before adding to the tank. Ammonia levels of newly made water at 1.0ppm also. I was baffled. Water from the sink never caused an issue, tub water did. Figured that I found out the issue... so I went and bought many gallons of distilled and spring water to stock up on, did a water change with that, all levels tested back out normally in the tank, though PH dropped to 7.8 for the first time. So with 2 fish left, the tank levels are perfect, I'm finally relieved, the last 2 die that night. I'm totally devastated at this. After many hours of watching them in horror, I know they are dying of ammonia poisoning, they start gasping at the top, laying at the bottom, looks like their fins are chewed off, they get translucent and red patches under their gils - come to find out is a bacterial infection.

The other day, since water has been again showing great levels, I get 3 damsels from the pet store and put them in. One dies that night. Test the water in the AM and the level is at 0.25ppm, everything else is OK. I use some ammonia lock and the level goes down to perfect very quickly. I had 2 damsels left, I gave them pennicillin drops in the tank, to assist with any infection. Cheapest fish I could find but god, I'd have given anything to not kill them. Last night, I see the signs and another damsel is on her way out. Sure enough, I wake up and she's dead. I've been testing the water 2 times a day for about 3 weeks now so this is normal procedure for me right now. I test tonight and the level is back to 0.25ppm, the other and last damsel is showing no signs of being sick, very active, eating well, eyes look great and no visual signs of anything with their gils etc or erractic breathing. I don't want to get my hopes up that this one will make it (He was given pennecillin again today - and will again for the next 2 days). I'm doing everything I possibly can to ensure good quality of life and I have not been succeeding, please help with any info you have.

Oh, décor hasn't changed, I also have a turbo snail that's been in the tank for 2+ years, filter head is cleaned every 2-3 weeks as needed.

There must be some major thing I am missing, please let me know, I will appreciate anything you can tell me.

Thanks,
Angela

Essentially in a few words - you have a very small tank and have too many fish. To keep adding fish you need a much larger tank. A 12 gallon tank is small. If you had a 20 or 30 gallon tank, that would be a different matter. You say you have a filter but you didn't say if you had an air stone or two. I used to keep at least 2 air stones or more in any of the 20+ tanks I used to own. I had everything from a 10 gallon up to a 50 gallon tank and none of my Africian Chichlids ever died. I had them in 30 gallon tanks - one tank per color of fish and those are hard to keep. You need to add more air to the tanks as the fish aren't getting enough air. Water filtration is okay, but without the added air factor, your fish will definitely die off.

Could there be mold or some toxin in your fish food?

Adding 3 fish at the same time will cause an increase in the toxins that you noticed (ammonia and nitrite).
A fish that has died will also contribute to a rise in ammonia.
Only add one fish at a time and check that the fish you put together in the same tank are compatible.
Damsels are territorial and nippy with one another and so are clowns when you have more than 1 of the same sex.
The more dominate fish will kill off the others if adequate space isn't provided.
The injuries and stress caused by fighting and/or getting picked on will cause disease breakouts.
Water test results might also be affected by ammonia lock and other ammonia detoxifiers giving you inaccurate readings.
Be sure not to over clean the tank or filters or change too much water
At one time because you might accidental remove too much of the good bacteria causing a spike in ammonia as well.
With a 12 gallon saltwater tank, changing 2 gallons of water at a time is the max.
If you have any specifics, please let me know.

They said you need 2-3 gal. per 1 inch of fish. Imagine a 10 inch fish in 10 gal aquarium? Don't think so...

One more thing... Don't clean the filter head when you do a water change, too much necessary bacteria will die and ammonia will spike. Try keeping crushed seashells in tank to keep ph stable. Make sure you have a Bio and a carbon filter in your tank... try Penguin that hangs off the back of the tank... but introduce it while you still have old filter in for a few weeks so bacteria can grow... or keep both in your tank. Two never hurt. Last thing... Are you conditioning your tap water or using bottled water? I condition my tap water but I live in a large city and there is tons of ammonia in the tap water so I need to add 5X the water conditioner than I normally would... so learn what's in your city's water if that's what you use... Environmental Protection Agency - Local Drinking Water Information