Converting 2 family and selling both condos

[Kate V.]

Hi- I'm in the process of converting my 2 family into condos. It has been our primary residence for 2 of the last 5 years, we file jointly, and one of the units has always been rented out. I'm looking for advice on how to manage capital gains taxes.

Specifically, do we have to claim exemptions on the first unit we sell? Meaning, if we sell the rental unit (which is lower value) before our primary residence unit, can we claim capital gains exemptions on the second (larger) sale if it is sold around the same time? Or would the exemptions only apply to our unit, since that is our residence? And if so, how is the cost determined when it is just part of the whole house that was originally purchased?

Also, how can we minimize taxes that we will have to pay on the sale of the second unit (whichever it is)? Our intention is to invest the proceeds in a property outside of the US.

I'd appreciate any advice or reading recommendations to help sort this out.