Fix anything thats broke , give it a fresh coat of paint and rent it out . 

So there are a few ways to look at this, the 1st question is are you sure your renovation’s will double the property value, most renovations on primary residences, your lucky to get 60-70% of the dollar cost back out upon sale, so really nail down your comps, than you have basically a math problem if your rate on your primary goes up how long if ever before that extra payment is more than 400k in taxes, that’s just a simple calculation to help you decide, but I suspect you actually have a different question here, from a purely financial perspective my guess is the best option is to do anything to avoid that tax hit, but one of the reasons to make money is to spend it on things that you enjoy, based on your overall financial picture and a subjective view of how much enjoyment you will get out of a renovated home, you should decide if you want to roll your profit into another deal or “cash-out” your winnings, I love cars and I’m willing to spend more than is fiscally smart on them because they bring me joy, there is nothing wrong with that, but i don’t think it’s a fiscally smart choice, without knowing your exact property id imagine a renovation would fall into that category, so that’s the terms I would use to decide.

The LLC question was Bill's assumption, I didn't bring that LLC structure in my initial posting because I didn't want to complicate things...but you both are right, it is part of the question (although not from, or not only from the 1031 exchange perspective): what is the best structure to hold these properties?

As an agent I always tell this to my investor clients who are looking to sell:If it is a single family home - you are better off selling it vacant with fresh paintIf it is a duplex/triplex/quad - leaving one unit vacant and "rent-ready" can be beneficial. 

So, the following comes from the perspective of a small-portfolio landlord who is a DIYer who lives close to his units and doesn't want to pay for a Registered Agent and PO BOX.

Both arenas challenge us to see the world from new perspectives, assess risks smartly, and enjoy the journey as much as the destination.

Each return metric gives a unique perspective into a particular risk associated with an investment / portfolio.

All I see here is everything from your perspective.  

I can walk you though what we have so that you can get and idea what works for you from a Pipeline Management perspective.

Start fresh with new numbers and requirements.