The gains from the sale are essentially rolled over into the new property.If you decide not to do a 1031 exchange and instead recognize the capital gains from the sale of your investment property, you can generally use any capital losses from your stock market transactions to offset those gains.The fact that your wife is a real estate professional may have implications for the treatment of passive losses and gains.

Real Estate Professional (REP) status primarily affects the treatment of real estate activities for tax purposes.

This could include income statements, bank statements, or any other relevant financial documents.Communication Records: Maintain a record of all correspondence with the borrower regarding the loan modification, including emails, letters, or notes from phone calls.Independent Valuation: If there's a reduction in the principal balance, it might be necessary to obtain an independent appraisal or valuation to determine the fair market value of the loan after modification.Professional Advice: Consult with a tax professional or accountant to ensure that the loan modification complies with tax regulations and to document their advice.Internal Records: Keep internal records that show the accounting treatment of the modification, including any write-offs.Documentation is crucial to substantiate any losses for tax purposes, so it's advisable to work with a tax professional or accountant to ensure compliance with tax regulations and to maintain accurate and complete records. 

The tax treatment would depend on the percentage of time and space used for each purpose.1031 Exchange: If you are considering selling any of your current investment properties to fund this purchase, a 1031 exchange might be a strategy to defer capital gains taxes.Tax Credits: Investigate if there are any local or federal tax credits or incentives for certain types of property use, such as energy-efficient improvements.In any case, documenting your personal use and rental use meticulously is crucial for tax purposes.

If you will be staying in it for a year, then you should consider two years for favorable tax treatment - as in $500K gain excluded from taxes (married filing jointly).In the end, your point of view should be that you will be building this to live in.  

(We are retired now due to his cancer).

Get an LLC and decide if you want to elect S Corp treatment for it.

The new paid per booking ads will receive some preferential treatment due to more revenue going to HA as well some it is more important than ever to build an optimized ad if you are looking to keep a larger portion of the revenue. 

In what ways do contractors take advantage of new investors wholesaling or flipping and how can we avoid this treatment?

Here's a link to a treatment.