Primary Residence 121 + 1031
I am looking to purchase a house from someone who has owned the property for 20+ years. Their cost basis is ~$250K and the home is now worth ~$2.5MM. This is their primary residence so they qualify for the $250K Section 121 exemption. I would like to structure a deal with them where I rent the home from them for two years, allowing them to qualify for a 1031 exchange to defer the capital gains taxes on the ~$2MM gain. I would rent the home at a market rate, but would structure a discounted purchase option at the end of the two year rental. Is this allowed for purposes of the homeowner's 1031 exchange?