To qualify for the capital gains exclusion, you must have lived in the house as your primary residence for 2 of the 5 years leading up to the date of sale. The two years need not have been consecutive; you also qualify if you lived in the house as your primary residence for 730 days during the 5 years leading up to the date of sale.
The tax law provides an exception to the two-year rules for use,
ownership and claimed exclusion when the primary reason for the sale is
health, change in place of employment, or, to the extent provided in IRS
regulations, “unforeseen circumstances.” The "unforeseen circumstances" accepted by the IRS are:
death,divorce or legal separation,becoming eligible for unemployment compensation,a change in employment that leaves the taxpayer unable to pay the mortgage or reasonable basic living expenses,multiple births resulting from the same pregnancy,damage to the residence resulting from a natural or man-made disaster, or an act of war or terrorism, andcondemnation, seizure or other involuntary conversion of the property.
So it appears that your capital gain will be subject to taxation.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
