One year is the difference point from short term to long term capital gains. This is a good benchmark - but there is no law that says this expressly. If you got audited and had never made any efforts to rent it and just ran late or too long to sell, perhaps you would run into problems.
I wrote about this is my blog - but here is the key part below. https://www.earlwhite.law/guide-1031-exchange-new-jersey/
“Dealer Property” Not Allowed
Property held for resale (often called “dealer property”) cannot be included in a 1031 exchange. See Section 1031(f) (“This subsection shall not apply to any exchange of real property held primarily for sale.”) Investors building or flipping a house to an end buyer are holding the property for sale and thus cannot utilize a 1031 exchange on those transactions.
To establish whether a taxpayer has held property for sale, courts evaluate the taxpayer’s intent at the time he disposes of the property. Brauer v. Commissioner, 74 T.C. 1134 (1980) (“The taxpayer’s intent at the time of the exchange is controlling and must be determined.”)
Courts consider the following factors in assessing if the property was held for sale: (1) the nature and purpose of the acquisition of the property and the duration of the ownership; (2) the extent and nature of the taxpayer’s efforts to sell the property; (3) the number, extent, continuity and substantiality of the sales; (4) the extent of subdividing, developing, and advertising to increase sales; (5) the use of a business office for the sale of the property; (6) the character and degree of supervision or control exercised by the taxpayer over any representative selling the property; and (7) the time and effort the taxpayer habitually devoted to the sales. Cottle v. Commissioner, 89 T.C. 467, 487 (1987).
Although no single factor is determinative, the combination of several factors supporting a particular result is sufficient for a court to decide whether a taxpayer held property for sale to customers in the ordinary course of a trade or business. Raymond v. Commissioner, No. 18162-99 (T.C. Apr. 17, 2001).
See Reesink v. Commissioner, No. 2475-10 (T.C. Apr. 23, 2012) (The Tax Court approved 1031 exchange even though the taxpayer moved in eight months after the exchange. The court determined the requisite intent was proven by the taxpayers’ efforts to rent the home, including placing flyers in nearby areas and showing the property to potential renters, demonstrated their intent to hold the property for business purposes.)
See Goolsby v. Commissioner, No. 1276-07(T.C. Apr. 1, 2010) (The Tax Court rejected a 1031 exchange because the taxpayer failed to demonstrate investment intent citing, among other factors, the taxpayers’ failure to research whether certain covenants permitted the use of the real estate as rental property and their minimal efforts to actually rent the property).
