You may want to speak to your tax professional about having him reconstruct that to be a second mortgage that is forgiven.  

Any insight on how this can masterfully be done with surgeon's precision would be greatly appreciated.

I was 4 months along trying to refinance my primary residence, the appraisal came back that the single family house is zoned general commercial and now the bank won't finance because if it was ever destroy over 80% that a residential property could not be reconstructed.

You'll likely have to tear it down and pour a foundation and reconstruct a new home.

Arnie is a professional; he has steady hands like a surgeon.

Sec. 469(c)(7)(C) provides, "the term 'real property trade or business' means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.If you were the agent, your hours qualify.

Just another angle to think of.There are also ways and banks you could go through where you'd probably have little money out of your pocket using a combo of your HELOC (for the down payment) and traditional financing to finance the purchase/reconstruction costs of a new property.Relianz (now Union State Bank) (Brian Berkley is who I dealt with) would be a local bank that would do that sort of thing.  

O yes it will help us a lot to feel like a homes  two sides of complexes.

What is the rehab cost difference in leaving it as a duplex vs tearing down the walls and reconstructing it?

Who in this world makes $1600/day besides surgeons and real estate investors?