Fix a house, then section 121 Tax Exclusion - What counts?

[Tom V.]

Hi,

I am curious if there are any well-informed accountants or investors who can help me answer a question.

I bought a house with the intention of fixing it up and moving my family into it. It took me 5 months to get the prior owner/tenant out, and then I spent another 12 months rehabbing the property (6 mos permits, 6 mos build).

During that 17 month time the fixer work was occurring, I lived in my then-current house and did not meet the IRS tests for 'using' the fixer house as my primary residence.

The IRS booklet 523 defines 'non-qualified use' as "any period after 2008 where neither you nor your spouse (or your former spouse) used the property as a main home"

http://www.irs.gov/publications/p523/ar02.html#en_US_2013_publink1000240774

If I am kicking out a deadbeat and then gutting a house (never collecting rent etc.) then I am not using the house as a personal residence, but neither am I using it as a rental or a vacation property. Do I need to exclude these 'first' 17 months in my calculation of qualified vs. non-qualified use?

Gracias!