Home exclusion of gain (it was a business property converted to a home

"I was reading that was something new that was passed in 2008"

I'm thinking after about 2009 or 2010 something in 2008 kinda loses its luster as being new.

Based on the information you provided it sounds like your client is qualified for the exclusion as long as there is a she or another he married to your he.  But "they" may have some depreciation to recapture from the rental period.  Fill out the home sale worksheet in the software and see where it leads you.

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@Fabrod wrote:

My client traded a house (1031 Exchange) in 2015. 

He rented for a year and then converted to his own home.

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There will be "Nonqualified Use".  As was mentioned, the Home Sale Worksheet helps you figure that out.  To give a simplified example, if he owned the home for exactly 8 years but it was only his Principal Residence for exactly 7 years, he won't be able to exclude 1/8th of the profit.

Notice I said "profit", rather than gain.  The exclusion does not apply to the gain due to depreciation, both for the current home and the carryover depreciation from the previous home via the §1031 Exchange.

It has been a while since I had to warn my clients about "new" rules on converting a 1031-exchanged property to personal use.  I think there was a change in the law, a decade or so ago, but I'm not going to interrupt a weekend by looking for it.  The first thing that popped up with a Google search, and no doubt not the best source, is this:

"If you want to turn your investment property into a principal residence, you cannot immediately move into the 1031 exchange property after the closing without sustaining tax liability. To avoid paying capital gains taxes, you must retain the property as a rental unit for at least two years before you can convert it into a vacation house or primary residence."

https://www.1031crowdfunding.com/converting-1031-exchange-to-principal-residence/

So, maybe they should have filed an amended return for 2015 and turned themselves in for violation of 1031 rules.  (I write "they," because you said it's a joint return.)  Somewhere in the back of my mind I recall a five-year rule, but I would have to read Section 1031 to try to find that.  We don't believe in reading Code around here.  

So if they didn't do the right thing back then, are they home free now?  Good question.