Capital gains on insurance settlement?

[Steve Neuman]

Hey guys! Long time listener, first time caller! I have a tax/capital gains/ insurance settlement question: I bought a duplex 3.5 years ago with a conventional mortgage. Owner occupied one side, rented out the other, until 1 year ago. There was a fire one one half of the property, and the water damage extensively damaged the whole thing- total loss by my insurance companies standards. The settled out to the maximum of my policy limit less depreciation because I'm not fixing it. Sold the house as-is, paid off the mortgage, and have money left over. Do I owe capital gains on any profit from the settlement, as I occupied the house for more than 2 of the last 5 years?