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I read one post somewhere else that said: "The rule for a house is that if you have owned it for 2 out of the last 5 years and lived in it for two out of the last 5 years then it is a tax free sale, so you don't have to declare any gain, but you can't claim any loss either. So the house should do you no good, can't take a loss on your taxes. BTW the lived in and owned do not have to be the same years."

We owned and lived in it since 1999, moved in May 2010 and rented it out since then. Sold August 2012.

Everything I have read so far says we can take the loss on the sale of the rental house. I have NOT yet found anything about the "lived in it for two out of the last 5 years" rule mentioned in the above quote.

Does such a rule exist?
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