selling expenses reduce your gain. any operating expenses that you didn't claim when paid for in prior years are not deductible against rental income for 2019. if significant, you should amend prior years. as Critter mentioned you can do a 1031 exchange for one or both properties. this defers the taxes on the gain but you end up with no cash either. another possibility is an installment sales of one or both whereby you receive the proceeds of the sales over 2 or more tax years. it is crucial that the payments include interest at at least the AFR rate
Reporting the Sale on Your Tax Return
Under the installment method, you include in income each year only part of the gain you receive, or are considered to have received. You don't include in income the part of the payment that's a return of your basis in the property. Use Form 6252, Installment Sale Income (PDF) to report an installment sale in the year the sale occurs and for each year you receive an installment payment. You may need to attach Form 4797, Sales of Business Property (PDF) and Form 1040, Schedule D (PDF) to your Form 1040, U.S. Individual Income Tax Return (PDF), along with Form 1040, Schedule 1, Additional Income and Adjustments to Income (PDF). You must also include in income any interest as ordinary income. For details, see Reporting Interest below.
Reporting Interest
You generally report interest on an installment sale as ordinary income in the same manner as any other interest income. If the installment sales contract doesn't provide for adequate stated interest, part of the stated principal may be recharacterized as unstated interest or original issue discount for tax purposes, even if you have a loss. You must use the applicable federal rate (AFR) to figure the amount of stated principal recharacterized as unstated interest or original issue discount. The AFRs are published monthly in the Index of Applicable Federal Rates (AFR) Rulings.
https://apps.irs.gov/app/picklist/list/federalRates.html
the downside to doing 1031 other than ending up with no cash is that there are additional costs. an attorney is usually needed and will spend more time then on a pure sale and there is the cost of the exchange trustee, the one that must hold the sales proceeds.
the downside to installment sales is the possibility the buyer might default and in any event you should have a lawyer review the installment contract.
just so you know its likely that a portion of the capital gain under current tax law will be taxed a 0%
you can use TT taxcaster to estimate your tax
but perhaps it would be worth it if you buy and download the desktop version of TT for 2018. (different versions for Mac and PC's so be careful) then you could play with various scenarios to help you decide. the tax law changes for 2019, should not have a significant effect on the calcs.
