Hi Bigger Pockets Community!

Hoping you can offer some advice: My husband and I partnered on a house with another couple to rehab it and rent it out.That was the intention, anyway. The guy from other couple abruptly lost his job (through no fault of his own, was a political play) and was offered a replacement job (though making $40K less!) 2 hours away, so he is out of the picture and the wife is waiting to get a job in that town and move as well. They are looking to recoup their costs so we will be putting it up for sale and that will be the end of that partnership. This is the first time my husband and I have partnered with anyone, and we don’t want to complicate the paperwork and sale, but are interested in knowing:

1) How you could prove intent to use as rental (other than advertisements, meeting with prospective tenants, etc.); how would you report this “intent” to the IRS? Is there a field on a form to complete, or does intent just have to be proven in case of audit? I thought I read somewhere that they automatically disallow holdings of 1 year or less, otherwise everyone would try to claim intent to avoid capital gains taxes. This is our first house sale other than primary residence.

2) Could a 1031 exchange even be possible for our side of the transaction? We split the expenses to fix it up, and we will be splitting the proceeds from the sale. Conveniently the house next door is up for sale at a great price and my husband and I are looking to purchase it after it comes out of probate to use as a rental, so they are like kind, and I understand the 45 and 180 day rule and need for a QI. We estimate each couple would make ~$30K. Would it even be possible to try to separate our potential $30K share within the sale documents for 1031 with this other property?

Thanks so much for your input and suggestions, we really appreciate it!!!!!