You must decide whether you want to include or exclude the seller carry-back note inside your 1031 Exchange before the close of sale of your relinquished property.

Converting your primary residence into a rental property does not exclude you from taking the section 121 capital gains exclusion.

With that said, I believe we should be able to exclude up to $291k of profit on the property sale (which would more than cover us in total profit).

You need to determine if you wish to exclude them or not.

Most tax auctions require the bidders to commit all or a substantial amount if money in order to bid on a given asset.Due process is what owners and excluded claimants whose rights and benefits were adversely affected, petition judges to reverse sales. 

Typically they exclude the rental income of the SFH when calculating ratios.

But since it's a duplex...you're already at only 50% of the gain (assuming they're the same size) being excludable. 

Maybe you can just exclude them since your history with tenants using those services shows that rent payments become spotty; if excluding them means you won't get many applicants, then maybe there is some other adverse action more suitable, like a guarantor or co-signer required, bigger security deposit, etc.

Got outbid by 50k, cash with 4 offers on the table excluding mine.

Placing a range in the basement would necessitate fire separation between the basement and main floor, so we simply exclude the range.