insurance ended paying out policy limits $175k
That would mean the insurance company declared the structure a total loss. But a total loss for the insurance company is not a total loss for you, by any stretch.
My understanding is that it essentially works as if I sold the property and received $175k for it
Your understanding is incomplete. Remember, the insurance company *does not* insure land. Not one single penny of your insurance payout is for the land. Your name still remained on the property deed after the payout with no ownership changes what-so-ever. So if you treat it as sold (and you can) then that insurance payout for the sale of the structure *only*. Not the land.
Therefore, if you maintain the original cost basis, your sale price is the insurance payout (minus that designated as lost rent, which is included as rental income) plus whatever you sold it to a third party for.
unless i buy like kind property within two years.
No longer true. That reinvestment option expired and died back in the 2008-2010 time frame. What you do with the proceeds from the sale does not matter and makes no difference that the gain is taxable, and you will pay taxes on it.
If the "sold it" route is the way you want to go with this, that actually makes it easier on the tax front. But I don't know if it helps or hurts since comparing it to other scenarios is a waste of time at this point, since you've already sold the property and no longer own it.
