The minimum "initial" lease term in Atlanta is 2 or 3 months, so they don't qualify as STRs, and thus don't have the same regulatory issues.

You’ve got to follow the rules closely, and that means working with a qualified intermediary (QI) who’ll hold your funds in escrow while you shop around.

i think selling to other investors would solve some of this, as i believe the same rules do not apply to rentals as to primary residences. 

We have a disabled son and can’t maintain full-time residence there so that’s why we’re selling.

A 1031 exchange is NOT available for owner occupied property so that’s the bad news.The good news is for owner occupied primary residences, for married couples, the first $500,000 of pain is tax free.No need to worry about a 1031, live in the house, sell it, use the $500,000 exclusion and you pay KP tax on whatever profit may exist,2.

You cannot use rental income above your mortgage payment to help qualify for a larger mortgage, but you can utilize 100% of the lease income to offset so that should help you qualify for more of a mortgage. 

Any of the above kills the STR loophole under this "substantially all work" option for material participation.Is there a way to qualify if all my outside help was a cleaning lady for 2 hours?

Hey,If "building class designation" is the same as zoning, then this seems like it can definitely be appraised as a two family, with both the legal and actual designation as a two family.Depending where in NYC, that may not help your valuation, as primary residences sometimes sell for more than investment properties, so check that out before challenging the appraisal and definitely before paying for another one.Double check all this with your lender/broker as well.Best of luck!

@Diane Perry is right, it's a cumbersome statute but the first thing you must do is have a qualified intermediary in place before your sale. 

Then, you need to study the IRS Publication 523 regarding the Sale of a Residence.