Capital Gains Questions

[Troy Danno]

Hello BP Community!  I am in need of some advice/knowledge on Capital Gains Taxes pertaining to my personal situation.

My wife and I currently live in CA and are planning to sell our primary residence in the next month. We are also planning to sell one of our investment properties (located in Montana) this month as well.  We do plan to utilize and use a 1031 exchange on the investment property to defer the capital gains on that sale.  However, we have been fortunate to also gain some serious equity in our primary residence in CA and want avoid paying those capital gains. I am here because we haven't lived in our primary residence for 2 years (just short), which i know is one of the requirements for the $500k capital gains allowance for couples.  However, I did find some extenuating circumstances provisions on the IRS website that make it look like i will still be able to get this done.  Wife on unemployment due to covid, etc. So i think that will get us on the track to get the capital gains exception, at least a partial percentage which would cover us as we dont need the full $500k.

Anyway,  my questions and concerns:

1. Can you do a 1031 exchange and also sell your primary residence the same year without capital gains?  Defer them on the 1031 exchange and then completely avoid them on the primary residence sale? I havent been able to pinpoint much clarity around this and didnt know if a 1031 would interfere with the capital gains of selling a primary residence or vice versa.  Simply put--in a perfect world i want to know if i can perform both sales and not have them interfere with each other at all on capital gains.

2. Has anyone else had a similar situation trying to avoid paying capital gains on the profit of a sale of priamry residence not owned/lived in for the required 2 years?  My wife and I, by the time of the sale, will have owned and lived in the property for 17 months. I scoured the IRS website and seems I found an area that i can use to get us qualified for the exception since we dont qualify for the 2 year piece.  My wife went on unemployment as COVID hit her industry hard and hasnt worked for a few months.  I assume the IRS will eventually put some literature out regarding COVID and impacts on capital gains, but odd situation and i want to make sure we can use every piece of intel to make this sale go well and avoid the capital gains. 

Any help/insight would be extremely appreciated!

Thank you all!