Should I sell a massively cash-flow negative property?

[Ben Morris]

I have a property should have been a winner but ended up being an ugly monkey on my back for the last 8 years.  It currently loses about $1k/month which is about what the principle payments are (yes, there are 2).

I bought the property in 2001 for 155k.  In 2005-2008, I pulled all of the 180k in equity out and put it into a business that ultimately failed, leaving me with a property I owed more on than what it was worth.  I ended up moving out of state and turned the property into a rental.

Fast forward to today.  I am fed up with paying interest and waiting for the market, so I have been paying 2400/month towards principal and I'm finally at the point that I can sell it.  However, I'd be hit with a pretty large tax bill (fed + state around 50k) due to the equity I've pulled out.  

In my head, I have 2 options: 1) stay the course and build up equity until I can get enough to make a 1031 exchange into one or more cash-flow positive properties, or 2) sell it and pay the taxes.

My issue with #1 is time. In a few years, I can a serious amount of equity, but at what opportunity cost?

My issue with #2 is that I don't want to pay the man. In my mind, that puts me out of real estate altogether, and I want to make real estate a serious component of my portfolio.

Is there a creative option #3 that doesn't entail foreclosure (I'd have to pay those taxes) and my income is sufficient enough that I don't think they'll forgive it very easily.

Thank you!

Ben