@aspielmansir - just so the facts are clear, let's add some numbers to the question
1) your father and his spouse lived in the house as their primary residence for 2 of the last 5 years of ownership (well, half the house as it was a duplex)... you keep referencing only your father, but just want to be sure there is a spouse involved who also lived in the home as their primary residence for 2 of the last 5 years of ownership.
2) let's say the home sold for $700,000 with 65% of that allocated to the residence side, or $455,000. The home was originally purchased in 1973 for $35,000 and 65% of that is $22,750. For simplicy there were no improvements over 50 years and there were no selling costs when the home was recently sold. The profit on the residential / primary side was $422, 250. That is less than $500,000.
3) On the rental side, it's more complicated due to depreciation recapture, etc. but that isn't your question.
