I see that you posted this question twice and received 2 different answers. For that I apologize.
If you look at page 5 in the in the instructions for Form 593-C found here:
At the very top of left hand corner, it says the following:
Form 593-C/Form 593-E Booklet
Line 2 – Property last used as your principal residence
If the property was last used as the seller’s, transferor’s, or decedent's
principal residence within the meaning of IRC Section 121 without regard
to the two-year time period, no withholding is required
As I mentioned above, if the decedent lived in that house as their primary residence, then there is no withholding required, and you can check box 2
It does not say that YOU must have owned the home, or lived in it as YOUR primary residence, only the person that passed.
There is almost always what we (and the IRS) calls an "ordering rule". In this instance the ordering rule would be as they are listed on the 593-C form
What this means is that IF box 2 would not apply to you OR the decedent, (for example, if this was NOT the decedent's home, but a rental property) then you would got to box 3 to see if THAT box applied.
So as long as this home was the decedent's home (the reference to Section 121 merely explains what a primary residence is.......as opposed to say a vacation home or rental property) then you would stop at box 2.
I did make one mistake in my previous answer. The decedent did NOT have to live in the home 2 out of 5 years prior to their death. If they were living in it as their home, for ANY length of time UP TO their death, then it qualifies as their principle residence, or main home if you will, and it still qualifies for box 2.
When the other expert mentioned that YOU can't have 2 primary residences is true. However, what he missed is that, unless you held this property for yourself as a vacation home, or rental property (which from your question I assume you did not) then you may, according to the information I just provided, use the decedent's use of the property (as their home) immediately before you acquired the home as their beneficiary.
Again, If you have any questions, please post them here, and I'll be notified.
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