1. The time as a main home before rental is mostly irrelevant. In 1997 , laws changed rental and main homes to be more defined so people couldn't move in and out and avoid taxes easily. Then the rules changed with the sale of main home exclusion and put hard limits on the moving back and forth. There are exceptions to the 2 year rule but they don't match your situation. These factors, according to Pub 523.
You may qualify if you can demonstrate the primary reason for sale, based on facts and circumstances, is work related, health related, or unforeseeable. Important factors are:
- The situation causing the sale arose during the time you owned and used your property as your residence.
- You sold your home not long after the situation arose.
- You couldn’t have reasonably anticipated the situation when you bought the home.
- You began to experience significant financial difficulty maintaining the home.
- The home became significantly less suitable as a main home for you and your family for a specific reason.
2. @opus just chimed in with a great answer.
3. As MFJ, he will have the sale of main home exclusion while you have the sale of rental property both on your return.
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