I’d fix it up and list it to sell after I’d been there two years to take the gain tax free.

According to our understanding:1) California does not recognize REP status, but we could claim it on our federal taxes, is this correct ?

Intangible assets like goodwill or tangible personal property (e.g., equipment) are excluded from 1031 treatment and are taxed separately—goodwill is typically taxed as a capital gain, while equipment may be subject to depreciation recapture taxed as ordinary income.To minimize taxes on the sale of the business, consider strategies such as Opportunity Zone investments, which defer gains until 2026 if proceeds are reinvested in a Qualified Opportunity Fund (QOF), or structuring the sale as an installment agreement to spread taxable income over multiple years.

It’s like you bought the properties with a 30 year loan and are putting the rest in to a savings account.

However, this means you’ll need to comply with the annual filing, franchise tax, and reporting requirements in both states.

What paperwork should I keep a paper trail of to make things like taxes and other situations better/easier for myself?

These properties cover my mortgage, allow me to save for maintenance/repairs, and are projected to be worth $7–9 million by retirement.

Consult your local CPA to calculate accurately and minimize your tax liability.

I'd be happy to make connections over similar goals, and to learn about tax info for DC, great spots to buy, and trends for rentals.

Agreed - plus two additional thoughts:1) I always recommend having your CPA also review the drafted operating agreement for the tax issues.