How do I avoid getting hit with massive capital gains?  

That make it 100% clear in my mind that the capital gain timing starts with property ownership not tax lien ownership. 

It might make sense but talk to a good tax professional.If you have lived in the "Family Home" for 2 out of the last 5 years there is a capital gain exclusion $250 or $500k depending on filing status. 

"Passive income," is a VERY broad statement.

I was recently approached to participate as a passive investor in a significant multifamily project.

@Rene Van Wonderen congratulations on having so much gain to worry about.Her are some point in no particular order.You should be entitled to the homeowner gain exclusion of up to $500K for a married couple is you have lived there 2 out of the last 5 yearsloan amounts borrowed or due have nothing to do with the calculation of the gain. 

I’m currently a passive investor who’s been in real estate since 2019.

@Peter Schiff, Yes, Selling a property owned by an LLC in a 1031 exchange concludes with no recognition of gain. 

Remember if you do a 1031 out of Florida in to a state with income taxes you’ve just made those Florida gains taxable if you ever sell without an exchange.

Since the 1031 exchange failed, you’ll owe taxes on:Depreciation recapture (~$112K) taxed at 25%.Capital gain (~$80K) taxed at 15–20%, depending on your income.To offset the depreciation recapture, you’d need passive losses.