I'm quoting Champ @Mike9241 and am not interpreting the regs myself. Reference:
https://ttlc.intuit.com/community/state-taxes/discussion/re-i-lived-in-my-primary-home-ca-from-10-20...
That said, it doesn't make sense that somebody who meets the 2 year rule loses the exclusion because they waited too long to sell, but somebody with an exception to the 2 year gets the exclusion. Surely, there's been tax court cases on the issue. Yes, I know there's lots of stuff in the tax code that doesn't make sense.
