If your primary intent is resale (like a spec build or subdivide lots and sell) then 1031 is not allowed.If you can pass the intent to hold issue then it is perfectly fine for any tax paying entity to do a 1031 exchange. 

At this time, I believe this to be a wash, and dangerous, as most taxpayers will spend the advance payments, not knowing that the advanced payments reduce their refund / increase their tax due on the 2021 returns via their 2021 child tax credit.Beefed up dependent care expense credit -- 2021 return.Changes to the premium tax credit -- including forgiveness of excess credit repayment on the 2020 returns (yes, the current returns we're working on). 

However if an owner is in default on their loan, the bank hasn’t been collecting tax payments.

The 1031 Law (speaking practically)These rules apply to any exchange:Must complete within 180 calendar days of the sale of your relinquished propertyMust identify up to 3 replacement properties within 45 daysOnly complete tax deferral if the final value of the replacement property is worth at least as much as your net sale price for the relinquished property.If you trade down in value, the difference is taxableKeep the same taxpayer across propertiesYou can exchange into (and out of) any state and many US territoriesThere are lots of different assets that qualify as valid replacement targets in a 1031, so think broadlyI'll stop there and see if you have additional questions or want to expand on any point. 

We are self employed, but we do show W-2 income of about $60K and we take an additional $20K a year or so out of the business in the forms of equity distributions.Our problem is the first house and the higher mortgage/tax payments. 

Increase the cost of living for low/middle class or give the cost to the tax payers due to subsidies.

During a 24-month period selected by the taxpayer, rehabilitation expenditures must exceed the greater of the adjusted basis of the building and its structural components or $5,000.

You also must remember that while in the beginning transaction might be structured in compliance with the rules there is always likelihood of it leading to prohibited transaction in the future because of disqualified person's involvement.Once you have your personal funds and IRA funds in the same deal you are now opening a “can of worms” and the burden falls on you as the tax payer to proof that there are no personal benefits from your use of the IRA funds, and IRA did not benefit from the use of your personal funds.

If OP elects de minimis safe harbor ("DMSH"), he's going to have to capitalize as the expenditure is going to be more than $2,500.If OP forgoes the DMSH and instead applies the Betterment, Adaptation, and Restoration tests ("BAR tests") under the tangible property regs, we'd almost certainly have a betterment and/or restoration of the HVAC subsystem on our hands, so we'd also capitalize under this option.OP may be able to use the safe harbor for small taxpayers ("SHST") to expense the costs, however not enough information was given by OP.If SHST is off the table due to limitation, then must capitalize. 

Amount in default is $304k, no other liens, tax payments are current.