The law that you reference is only for a business property that is sold. Since the property is not business property this law does not apply.
What this law refers to is if you sell a business property to a related entity then the part of gain for the transferor that is attributable to a depreciable property received by the transferee is taxed as ordinary income.
Example, you have a rental property you sell to a related entity, the part of the gain attributable to the building (depreciable) is taxed at ordinary rates. The land (not depreciable) is not.
If the property is not a business property this law does not apply. It is not a business property just because someone buys it and turns it into a rental.
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