@rjs wrote:
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.
This. While you receive the holding period (and cost basis) for purposes of determining if your capital gain is long term or short term, you don't receive the holding period for purposes of the exclusion on sale of a personal residence. Those two elements are controlled by different sections of the tax law and the rules are not the same.
The simplest explanation for why congress did not add the gift holding period to the personal exclusion is that the exclusion was created to reward residential home ownership, not holding houses for investment.
