2 of 5 Yr Rule for Capital Gains Tax Exclusion

[Sharon Li]

My parents purchased a property back in 1994, which they used as their primary residence until around 2012, then started renting it out. They'd like to move back into the home and live there for 2 years before selling, so they'd qualify for the 2 of 5 year residency requirements. However, they talked to a CPA, and were told that would not work, citing a special rule enacted in 2009 limiting the $250,000/$500,000 exclusion for homeowners who initially use their home for purposes other than their principal residence, such as a rental or vacation home. I told my parents that the CPA is perhaps mistaken, since the home was used as a primary residence initially before it was ever a rental home, and to go back and clarify with the CPA. However, the CPA did not respond to further questions.

Everything I've read so far seems to indicate that my parents would qualify for capital gains tax exclusion under the 2 of 5 year rule. Am I understanding this correctly or missing something?