More and more wealthy people would buy up properties, convert them to short-term rentals (like Airbnbs) and take accelerated bonus depreciation on them, allowing them to report big losses that offset taxable income in the early years; then they sell their existing home, using the exclusion mentioned here to wipe out most of the taxable gains, then move into the rental home and use that as their primary residence. They buy another property to turn into a short-term rental, following the same process as before. Once their new primary residence/old short-term rental qualifies for the exclusion mentioned here, they sell it and rinse and repeat. The bonus depreciation taken on the short-term rental that you would normally have to pay back in terms of taxable gain when you sell the property will then be mostly eaten up by the exclusion mentioned here.
In short, people with the means to do so will own more homes than they otherwise would -- thus reducing supply even further -- and when they do sell those properties, they won't have to pay much (if any) tax on the gains -- thus making the rich even richer and exacerbating income inequality.
This absolute is yet another gift to the wealthier among us and absolutely will not help the housing market issues we are currently experiencing.
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