Section 121(b)(4)(C)(ii)(I) tax question

[James Lyons]

Hello BP Community,

Hoping one of the tax experts out there can provide me some clarity.  I've read that this statute allows taxpayers to to ignore any "nonqualifying" use of a property that occurs after the last date the property was used as a primary residence.  So basically, if a property was first a primary residency before turning it into a rental, than the "nonqualifying use" equation does not apply?  Versus converting a rental into a primary.  

The reason for my question is because in our case, we bought our primary home and lived in it for 3 years before converting it to a vacation rental, which we have been renting short term for 7 years.  Our situation has now changed, and we plan to move back to the home and use it as our primary residence again (which we will reestablish at least 2 year primary residency status).  So after reestablishing 2 year primary residence status, if we were to decide the sell our home at this time, would the "nonqualifying use" apply to the capital gains?  In other words, would be required to do the 5/7 split?  

And just so we're clear, I understand the depreciation recapture, I am just unsure on the "nonqualifying use" regulation since the home was first a primary residency to begin with.  

If  any one has knowledge on this topic, I would be glad to hear your comments.

Thank you