If you sell the home you live in -- your primary residence -- you can sometimes avoid paying capital gains tax. If you live in the home at least 2 years, you can exclude up to $250,000 or $500,000 if married, of capital gains. This is one example of Congress trying to do social engineering -- change tax laws to encourage things that they think are good for society -- in this case, owning your own home. Home owners who live in their own homes pay less capital gains tax than investors who rent their property out to others. People who buy homes to flip them also pay capital gains, even if they live there, unless they own the home for at least 2 years.
The hardship rule applies when someone who is a legitimate home owner (not an investor or flipper) needs to move after owning less than 2 years for a hardship. They may qualify for a partial exclusion of their gain.
The hardship rule doesn't apply to flippers or investors because the exclusion rule doesn't apply to them either. If you have capital gains on investment property, it is always taxable, unless you do a like-kind exchange (which postpones the tax, but does not make the transaction tax free.)
