when the property is converted to rental the cost or fair market value if lower, exclusive of the land, must be depreciated. When you sell the depreciation is recaptured and taxed as section 1250 gain. Any gain in excess of the depreciation recapture may be eligible for the home sale exclusion (HSE). to be eligible for the HSE the property must have been your principal residence for the periods specified: one of you must own it for any two years in the 5 years before the sale and both must occupy the property for any 2 years in the 5 years before sale. occupancy can be after different times.
after depreciation recapture and the HSE any excess gain is taxed as capital gain
one other rule the full HSE can only be taken once every two years.
if you don't meet both 2-year tests you may be entitled to a reduced exclusion, if the primary reason for moving is a change in place of employment. The safe harbor rule for this is the new place of employment is at least 50 miles farther from the residence sold than the former place of employment was.
as of now there is no special federal exclusion or credit for a taxpayer who has a disability.
