Primary residence condo conversion gain exclusion

[Mark Salacinski]

My wife and I have lived in a 2-family house together in NJ for 5 years and are now getting ready to renovate the first floor unit and then sell the whole building. We are considering doing a condo conversion first because we believe we can get a premium by selling it as two condos instead.

Does anyone know how the IRS capital gains $500k exclusion will be treated if we do the condo conversion and then sell the units within a year or two after conversion?

If it matters, I think we can safely say that we lived in both units for the past 5 years because we used both and never rented either one out.