Selling a primary residence previously a rental tax exempt?

[Daniel B.]

Hi,

  Thank you in advance for the replies.  I have tried searching the internet for this answer, but have found a few different answers and I am not sure which one is correct, and none apply exactly to our scenario.  My wife and i purchased a 2 family rental unit in 2012.  We ended up moving into one of the units (the larger of the two) in June 2015.  We are building a house which will be done late this spring and are debating between selling and renting out our 2 family unit, but we don't want to have to pay taxes on the gains, how much taxes we would have to pay will dictate if we rent or sell.

   Since we have lived in the unit 2 of the last 5 years, do we not have to pay taxes on the gains if they are under $500,000?  Do we have to pay taxes on the gains for the percent of the time we owned the property that it was a rental?  What about depreciation we have taken?  How does the fact that we never lived in the whole house, just one of the units affect this scenario?

Thanks in advance!

Daniel