Since the 2004 Jobs Act, the requirements are a little tighter. Now, the taxpayer must hold the acquired property for five years, in addition to living in it as his personal residence for at least two years.

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If an investor signed a contract and flipped it three months later, the IRS would say it was not held for a reasonable time, therefore he didn't intend to be an investor. The IRS has taken the position that two years is necessary to show reasonable time, but there are a number of cases where they have taken that position and lost. My own position is that a year and a day is all that is necessary.

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