No, the gain is taxable and any capital improvements would be listed as an additional asset in the rental activity. This answers each of your questions. Form 4797 would still be needed since you had 'boot'.
The capital improvements would be listed as a separate asset after the like kind Section 1031 trade.
Boot: Any property or money you might have received that is unlike property in the exchange would be immediately subject to capital gains tax.
@demiace
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