You say you lived in the home less than two years. None of the capital gain will be excludable . However, if you wait for the required two years, before selling, you will be allowed a partial exclusion of the capital gain from a sale.
However the gain must be allocated between rental time and time it was your principal residence. The depreciation recapture is fully taxable.
Using an example, if you owned the home 5 years and lived in it 2 years, 40% (2/5) of the gain, not including depreciation, would be excludable. Carrying the example further, if you sell it for $100,000 and had paid $50,000 and took $10,000 depreciation; $20,000 of your $50,000 capital gain (40%) would be exempt from tax under the home sale exemption. $30,000 would be taxed at long term capital gain rates and the $10,000 depreciation recapture would be taxed at section 1250 rates
