The IRS does allow you extra time to gain the exclusion when you have to serve overseas or PCS and cannot sell the home. You do not "get credit" for your time away, but your time is extended.
Specifically, the rules allow you to “suspend” the years while you are away from your primary residence while on Qualified Official Extended Duty. Qualified Extended Duty includes a PCS move of at least 50 miles from your current primary residence or if you are assigned to Government Quarters under Government Orders (i.e. you are required to move into base housing due based on your job or some other military requirement).
The suspension can’t be for more than 10 years and you can only do it for one home at a time…you can’t have two primary residences. To simplify all the above, if you lived in your home for at least 2 of the last 10 years and you left your home because of military orders (PCS or into Government Housing) you qualify for the exemption of the Capital Gains on the sale of your primary residence.
Because you did not live in the home when you returned and sold it, you never lived in it the necessary 24 months which is why the gain cannot be excluded.
See IRS Publication 523, page 3 and 4 for examples
In order to use the partial exclusion test, the main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event. since you did not sell the home when you PCS'ed and made it a rental you cannot use this. I tried it for a military client as there was no case law and the IRS ruled against us. You have to" sell it immediately due to the move, health issue or unforeseeable event."
https://www.irs.gov/pub/irs-pdf/p523.pdf
Make sure you have your basis adjusted for improvements and repairs over the years to possibly lessen the gain.
