Avoiding Capital Gains on Rentals

[Jillian S.]

I'm reading conflicting things regarding capital gains on rentals.  According to the IRS site, it looks like one can live in a rental property for 2 of the past 5 years, even if that property was acquired as a 1031 exchange.  One must keep the property for a minimum of 5 years.  My understanding is that if I do this, for each of my two rental properties, then I can avoid capital up to $250K (I'm single). Only selling one property every two years of course.  

Now...I recently read an article stating that, for example, I have the property for 5 years, I live in it for 2 of the 5 years before selling, and it's a rental for the other 3 years.  I would only be able to avoid 2/5 of the capital gains, due to the fact that I lived there only 2 years (qualified used), but the other 3/5 of the gains would be taxable because I didn't live there, it was a rental for 3 years (unqualified use).  I'm not seeing anything about this on the IRS website, however.  

Can a tax attorney or a CPA advise?  I'm considering doing a 1031 exchange on two rentals, purchasing in a different city, and over the next 5-10 years, I would live in both of them for 2 of the 5 years before selling them.  (maybe...who knows how life changes!  haha, but that may be the plan for now). I'd really like to have some solid knowledge on this before doing a 1031 exchange as depending on what the deal is, I may just keep the current rentals.  

Thanks in advance!