There’s a relatively new U. S. Tax Court case Reesink v. Commissioner, (April 23, 2012) T.C. Memo 2012-118, that could be of interest regarding a 1031 exchange.
The Reesinks, husband and wife, purchased a residential residence for investment purposes to use as a residential rental. The Reesinks after much effort over a period of eight months were unable to find to find a tenant and obtain the rent they wanted so they moved in and sold their then current home.
Tax Court found that the Reesinks “intended” to hold the rental property as an investment at the time they engaged in the 1031 exchange and purchased the residential rental as the ‘upleg’ or replacement property as its known to the IRS.