The exception for Service personnel allows you to suspend the 5 year period while you are still on official extended duty. This would allow you to suspend the time between when you PCS'd and when you retired. If you ignore that time period and lived in the home for at least 2 of the last 5 years, then you would qualify for the exception. You would have to calculate exact dates you lived in the home and the time period after you moved away and before your retired to determine if you meet that standard.
https://www.irs.gov/publications/p523/ar02.html#en_US_2016_publink10009823
Service, Intelligence, and Peace Corps Personnel
If
you are a member of the Uniformed Services or the Foreign Service, or
an employee of the intelligence community in the
Unites States, you may choose to suspend the
5-year test period for ownership and use if you are on qualified
official extended
duty. This means you may be able to meet the
2-year residence test even if, because of your service, you didn’t
actually live
in your home for at least the 2 years during
the 5-year period ending on the date of sale.
Example.
John bought and moved into a home in 2007.
He lived in it as his main home for 2½ years. For the next 6 years, he
didn’t live
in it because he was on qualified official
extended duty with the Army. He then sold the home at a gain in 2015.
To meet the
use test, John chooses to suspend the
5-year test period for the 6 years he was on qualified official extended
duty. This
means he can disregard those 6 years.
Therefore, John's 5-year test period consists of the 5 years before he
went on qualified
official extended duty. He meets the
ownership and use tests because he owned and lived in the home for 2½
years during this
test period.
