1986 35 hp Mercury dies in gear when warmed up

I'm completely stumped. Just bought a 1986 35 hp Mercury about 4 months ago and it ran fine for a while. Recently it has been dying when it's put into gear after it's warmed up. Letting it cool down and sit for a while, and it will start up and run fine for about 10 minutes. It can start up fine and rev up in neutral but dies as soon as put into gear. I feel like it's not fuel related because it will run forever and even rev up in neutral. Could it be something electrical that happens when it's warm? So far I've

Checked compression (130 top, 124 bottom)
Checked spark (good spark both cylinders on 7/16 inch gap)
Cleaned/rebuilt the carb (didn't really need it, was very clean)
Checked the fuel filter (perfectly clear)
Replaced plugs (would come off slightly wet, but likely due to all the cranking When trying to get it to run again)
Adjusted idle (idles fine in neutral maybe even a little high but dies in gear)

Next step is to drain the foot and see if something in the lower unit is preventing it from running in gear. I'm not too sure about this though, becusae for the 10 minutes it runs well it doesn't have a problem running in gear. As long as I don't idle once it's warm it will run fine but as soon as I begin to throttle down it starts to sputter and die out.

Any help is greatly appreciated. Thanks