The 121 Exclusion will only exclude your capital gains, not your depreciation recapture.In regards to changing your current primary to a rental, this would make sense if your capital gain significantly exceeds the 500K (married couple)/ 250K (single).

My initial instinct was because performing notes would be current with their property tax payments, but this isn't necessarily true since the borrower could still be late on payments with a performing note (it's just that they would be <90 days late).  

In 2014 got married.

I'm married but all the loan approvals and everything  in general has been in my name only.

Don't marry the first girl you take on a first date!

I currently am married and have a little one on the way so that is making this more challenging for me because I want them to be well taken care of. 

If it is someone that has passed on or has other reasons for not paying ie: jail, divorce, etc. then it is okay to move forward once the redemption period has passed with a foreclosure if not then you could allow the tax payer an additional years of time for the redemption period for an additional 10% interest rate. 

Hi Everyone,I am a US citizen who is married to a Korean national.

You mentioned "we" and it seems a spouse is involved, so it is not owned by a single person, though in some cases married people is considered a single entity, such as in lawsuits involving piercing the corporate veil.To play it safe, suggest you keep the old entity until the 1031 is completed, unless you have this entity issued completely resolved by experts.

If you do enough research on the property owner then you may be more secure about the delinquency of the property owner and the lack of tax payment.