In your case, changing the property from a rental to your primary residence constitutes a change in use.The depreciation recapture will be calculated based on the fair market value of the building at the time of conversion, not including the land value.Since you're tearing down the existing structure, the entire amount of depreciation taken over the past two years will likely be recaptured, as the building's value at conversion will effectively be zero.The recaptured amount will be taxed as ordinary income, up to a maximum rate of 25% for residential rental property (Section 1250 property).

I am on the other side of the bridge in Virginia - there is a good amount of DC area people here on BP

Katie, my advice would be to do a cash-out refinance and take out the maximum amount you can for the property to still be able to cash flow.

I have a good amount of conversations, even with clients, on how they want to cash flow x amount so they can set up to buy their next property.

The policy must provide a minimum of $[amount] in liability coverage.

If it isn't the same amount every month - an entirely new batch has to be setup for each "off" amount and refunding them is also a bit of a hassle.  

Been in the spray foam business going on 8 years now and have a good amount of money in retirement accounts.

Is it doable - yes but you will need to go to a lender who probably uses their own funds vs. an instituational lender as they will not like 2nd position nor the low amount.

You'll charge the applicant whatever the amount is to do a background check.

The other thing I have learned over time is that the clearer your vision is, the easier it is to get there, so CLEARLY defining the location, type of property, purchase price, renovation amount, etc. etc., will really make a big difference.