Being military can exempt me from the 2/5 rule. Below is from the IRS website. I am just having a hard time understanding it and how it may apply to my situation. I was active duty when I bought the house, but now I am retired.
That statement as written, is wrong. Just being in the military is not enough. Nobody is exempt from the "2 of last 5" rule.
If you were AD/MIL and moved because you were required to under official orders, then your look back day count is suspended for the period of time you are away under official orders, or a maximum of 10 years; whichever is less. For a retiree, the period of suspension stops on the day you retire as shown on your DD-214.
If the time you actually lived in the property was less than 2 years before moving due to official orders, then you get to take a prorated exemption; not the full amount. As for period of time lived in the property, the IRS counts the days. So to get the full exemption, you must have lived in the property for at least 730 days of the last 1826 days you owned it, counting back from the closing date of the sale. On the count back days, you do not count the days between the date of your orders forcing you to move out of the property, and the retirement date as shown on your DD-214. If that suspension period is more than 10 years, then you can only skip a maximum of 3,652 days (which is 10 years) when counting the look back days.
