Question about a potential 1031 exchange

[Jason Pritchard]

Hey Everyone,

I'm looking for some advice on how to best defer capital gains taxes on my next fix and flip project. I'm partnering up with my brother in law to flip a house that he owns but has been renting for just under 2 years. He purchased the home in 2010 and lived in the residence for 3 years prior to moving and renting it out, he is currently renting the home he lives in now and owns no other property. We have started the process of forming an LLC and I am currently working with a friend who is also a RE attorney to help guide me on the proper formation of the business. Here's what I would like to know:

Option 1 would be to transfer title of the home into the LLC's name, fix and flip the porperty, and do a 1031 exchange to defer capital gains? I have spent some time on this forum and also online researching the ins and outs of how a 1031 exchange works so I am somewhat familiar with the process.

Option 2 would be to keep title in my brother in laws name and since this was his primary residence for 3/5 years have him sell the home without having to pay capital gains (at least this is my understanding of how the law works).  I would work with my attorney to make sure that  all the legal paperwork is in place to prevent this deal from getting sideways on me.  

I do understand that that there is more risk with option 2 since I would not actually be on the titile of the property but I do like the idea of having access to our profits right away without being forced to adhere to some of the guidlelines within a 1031 exchange.  I am open to any thoughts or opinions that you may have, thanks in advance for the help!