" If in the future I decide to sell both properties to move to a smaller forever home, how can I sell both my vacation rental and my primary residence and avoid capital gains?"
In this scenario, you can minimize your gains, but not completely avoid them. Let's consider home A, where you live now. If you move out for 10 years but continue to own it, you would have to move back and use it as your main home for at least 2 years before you sell it. In that case, the 10 years that you did not live there would be "non-qualified use." Unfortunately, this is not explained well in IRS publication 523. (It's an instruction in table 3 but nowhere else.)
Briefly, let's assume you have owned your main home for 10 years so far. You move out in 2020, move back in 2030, and sell in 2032. You have 22 years of total ownership, of which 12 years, or 54%, is qualified (when it was your main home), and 46% is non-qualified. That means that 46% of the capital gains is taxable. The qualified gains can be applied agains the exclusion rule (which is $250,000 for single or $500,000 for married filing jointly). Then, if the qualified gains are more than your exclusion, they are also taxable.
If you rented home A to your son, then you will take depreciation, and that has to be recaptured (taxed) on the sale. Depreciation recapture is always taxed first, and you have to recapture depreciation you took or could have taken, so you might as well take it. (If your son lives there rent free, and you just consider it a second family home, you don't worry about depreciation.). There are other important rules to follow if you plan to rent the home to your son.
Now let's consider the vacation home. If you live there for 10 years and sell it directly without moving out and creating another vacancy period, you would not have a period of "non-qualified use" to contend with, and all your gain is covered by the $250,000 or $500,000 exclusion rule. Gain more than your exclusion amount is taxable.
You would have to wait at least 2 years (730 or more days) after selling home B before selling home A in order to use the exclusion on home A.
