I had this scenario this tax season..... I learned something I did not know.  Big difference in taxable situation if rented then transferred to primary residence prior to selling  than if primary residence then rented then sold.       In my case, although taxpayer lived in home the last 2years prior to selling, he still lost a portion of his $250,000 exclusion because it was rental then primary.  Prorated based on total days owned to totals days rental.