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Now, let's look at your specific situation.
Your question is really two questions in one. The first answer is, yes, you can exchange your interest in the Alaska rental house for raw land, providing that the value of the land is equal to or greater than the value of your equity interest in the house, and you meet all of the other requirements listed above. IRC Section 1031 allows investors to exchange improved properties for raw land, and vice versa. But to qualify for a tax-deferred exchange, you must trade "like kind" properties, which means both the old and new properties must be held for investment or use in a trade or business.
On to the second part of your question: Are you really exchanging like kind properties? While you can legally exchange a rental house for raw land that is held for investment, you cannot exchange an investment property for your primary residence.
In other words, if you do a tax-deferred exchange and use the sale proceeds from your Alaska rental house to buy raw land, and then use that raw land for your personal residence, the IRS would probably declare the exchange invalid, and you would owe capital gains tax on the profits from the sale.
You might be able to accomplish your goal by doing a tax-deferred exchange for the raw land, building your retirement home and then renting the house out for a couple of years to establish its use as an investment property. You could later move into the rental house and convert it to your personal residence.
The problem is, there are no set IRS guidelines to follow. It's hard to know exactly how long you must hold the replacement property as an investment before you can safely convert it to personal use without triggering a capital gains tax liability. The IRS looks at each exchange on a case-by-case basis. Consult an accountant who is familiar with tax-deferred exchanges before deciding how to proceed.
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