1031 + 121 Non-Qualified Use

[Mark Caragio]

We have a property acquired in a 1031 exchange, which we rented out for 2 years and then converted to our primary residence.  We are approaching year 5 of ownership and plan to sell eventually, but not sure of the tax implications of renting out again before selling.  I know the first 2 years of this scenario are non-qualified years for the 121 exemption, but if we move out and rent again, will these following years be qualified or non-qualified?

So, if we sell at year 5, I know we can exempt only 3/5 of the capital gain.  But, say we sell at year 8 after moving out and renting three more years...would we be able to exempt 3/8 or 6/8 of the capital gain?   There is almost $500k in cap gains on this property, so I need to get this right. :-)