1031 vs Gift vs Sale

[Thomas F Blaskey]

Seeking informed opinions on the best tax avoidance strategy...

I own a SFR in NoDak. I purchased it ($265,000) in 04/2022 for #2 son to live in while he attends college. I have been deliberately managing it as a rental (ie, contract, collecting rent, etc.). I plan on selling it ($300,000) in mid-2025 after he graduates. I am now thinking about different tax strategies and would appreciate insight as all my experience in real estate has been on (my) primary residences.

The options I see:

1) Sell outright and pay Capital Gains tax (15%), depreciation recapture, etc.  Since I will have owned it only 3 years, the property value increase is minimal ($35K) and closer to $15K once I pay a listing agent and closing fees.

2) Gift it to #2 son now and let him pay the Capital Gains tax at his rate (0%) when we sell next year.  If we sell it inside a year (short-term), his regular tax rate is still low because he has no regular income.  I figured he can't claim as a primary residence as a renter even though that's been his only address for 3 years? I am aware that I would have to claim a large gift tax exclusion but $300K is relatively small.

3) Use a 1031 exchange to sell this property and buy an equal/greater one in AZ, where #1 son lives.  I would then make him my renter and kick the can down the road to figure out how to gift it to him.

It seems as if the 1031 exchange fees might be a wash with the taxes?  Thoughts?  Any other scenarios or details I'm not thinking about?