So you’ll have lower deductions in the future and owe all the taxes back if you ever sell without a 1031 exchange. 

There is of course taking into account the area and if it is getting some life pumped back into it, sure you might have a builder or buyer wanting to put a house on it.I would love to hear from anyone with experience on holding on to an empty lot and just taking the hit on the taxes until you can sell for a large price. 

If the seller really wanted to sell the property they would get it remediated.

You might consider cutting your losses and selling it, or investigate STR options.

However at any given time liquidating these RE assets if your moving to cash is going to cost you 8 to 20%..  8% sales costs if nothing needs to be done and values are exactly what you state.. 20% or more discount if you have to rehab or market price softens at the time you have to sell.. 

Due to the current market conditions pricing the home in the mid 300's we will soon be selling it to the current tenant to increase our portfolio diversification to a more profitable area.

Then you can sell tax free, even better than deductions. 

Also when you do decide to sell your section 8 portfolio, your end buyer will be relieved to see that all the rents are in place and backed up.This is just the tip of the iceberg.

Is there a specific reason preventing the owner from selling to you outright?

I'm desperately searching for a financing option for my spec homes that will give me better terms than the 10-12% interest plus $10k closing costs that my current HML is giving me.I tried doing buyer-financed, but they haven't been selling very well (although I really haven't waited long, I'm just impatient).