@JR Gonzalez, You can allocate the proceeds from your sale anyway you want. 

You have three choices...transfer the property and keep the loan in tact hoping they won't trigger due on sale, refinance into a loan that allows it, or simply leave things as they are. 

There are a couple of car washes in my local area that are for sale that I am interested in but do not know where to start. 

Purchase price: $55,000 Cash invested: $25,000 Sale price: $119,000 Bought at around $50kFixed up at around $20kSold at $120k What made you interested in investing in this type of deal?

Q2 is most important: If the mortgaage is upside down, it would have to be an approved short sale and that could take a very long time to rectify.

You didn't mention where you are operating, but depending on average home prices, I think you'll be ok.For instance if we're talkin $500k homes, and if you will get a 2.5% commission, split that 50/50 with your Broker, you will end up with $6,250 per sale, right?

Cash invested: $60 Sale price: $365,000 Sub-to deal with homeowner pre-foreclosure How did you find this deal and how did you negotiate it?

The "due on sale" clause is a non-issue here. 

Is there any creative way to avoid/reduce capital gains tax on the sale ?

So if I understand this correctly, by qualifying to extend the 5 year rule to 10 yrs, $250k if single or $500k if married of proceeds from this sale would be exempt from capital gains?