@Wayne Brooks is correct all of that gain will be exempted as long as you sell within three years of converting it into a rental.

The best thing to do is to figure out the gain on your property and make sure you are paid in for the year for both Fed and CA, especially if you are exempt from tax withholding.

Standard financing is not available to my friend due to marks on his credit for medical bills etc.  

That is when I learned about the HOMESTEAD TAX EXEMPTION.

I was a medical sales rep so I worked on the road and made my own schedule.

I believe you could also go the route of agriculture exemption with some ideas. 

My investment partner and I have some partners in the medical field out here in CA for the investing we do in Cincinnati, and find it sometimes challenging to get a sliver of their time for communication.

@Ashley Millar, you're referencing the primary residence exemption of sec 121.  

If you plan to go down this method, keep in mind, you may also have to file exempt securities for your C-corporation as it would be considered an offering (just because you have employees) and you would have to spend additional funds each year to have a qualified appraisal (could be NAV, Book Value or FMV -- but must be done by a qualified appraiser) done on the private shares of the business (this is requirement no matter what).

If you've been in your primary home in at least the last 2 of 5 years you may be exempt from gains of up to $500k.