Taxable Gain is $500k. 2.

It's an eligible asset for Section 179 expense, as well, but Section 179 expense has other limitations including property cost and taxable income limitations.

My suggestion would be to sell it and capture the non taxable profit. 

Personally, I like the 'vacation home for free' business model, I'm looking for cash flow between -$5k to +$5k per year so the property consistently pays for itself without incurring too much taxable income and then enjoy for my personal use, appreciation and tax advantages. 

The term you used - UBTI - stands for Unrelated Business Taxable Income, which does not apply to this situation.  

In certain circumstances, your broker may send you a tax document reporting the distribution as taxable, but you would be able to go back and amend those tax returns once the distribution is paid back. 

With that said cash flow doesn't equal taxable income.Why would you be scared or something when you can hire a professional to take care of it for you?

I was just trying to make the point that “taxable income” is still taxable even if you leave it in there. 

However, as stated above, you will likely not have much in taxable gain so it might not be worth the effort. 

@Basit SiddiqiWill I be able to write off some of my taxable income if I have the loss from sale of these vacant lots as well?