To put it simply, the rules for determining basis and holding period for the sale, and the rules for qualifying for the exclusion of gain, are different, and they are completely separate from each other. You cannot apply the rules for the holding period to the exclusion of gain. Qualifying for the exclusion has nothing to do with your holding period. You have to meet the requirements for the exclusion as stated.
As NCperson said, that's the way Congress wrote the laws.
The sale of a primary home can be short-term or long-term. The rules for the holding period are the same as for stock or other investments. The sale is reported and taxed basically the same as an investment sale, but with some additional rules, such as the possible exclusion of gain.
