1031 exchange with Section 121 exclusion

[Debbie C.]

My husband and I have lived in our home for 40 years and it's value has increased by almost $2 million over these years. We'd like to sell our house at some point in the near future because we're getting close to retirement. We're wondering if there's a way to use both the 1031 exchange AND the section 121 exclusion together when we sell our home?  The idea would be that we'd move out for a year or two and rent out the house so that it'd convert from primary residence to an investment property. Then we'd (ideally) be able to take out $500k tax-free, and the remaining $1.5 million we'd re-invest in a replacement property through 1031. Is this possible or am I being too naive? The thing I'm most unsure about is whether the IRS will let us do a 1031 exchange because we've lived in this property for 40 years and have never used it for investment purposes before. So I don't know if renting it out for a year or two would be sufficient to qualify it for 1031. Does anyone have any experience with this? Thank you.

[Bob B.]

@Debbie

@Debbie C. That's a great problem to have. 

@Dave Foster will be around shortly to give you some suggestions.