nonqualified use exception under section 121(b)(5)(C)(ii)(I): This exception applies to nonqualified use that occurs after the last date the property was used as a primary residence. It reads as follows: “The term ‘period of nonqualified use does not include any portion of the five-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer’s spouse.”
in other words, since you first used this as your principal residence and then converted it to a rental, the rental period is ignored for purposes of nonqualified use. your five-year period ends on the day before its sale at which time the use as your primary residence must be 24 months within that period.
