@Anonymous wrote:
After 1 year of renting, the owners moved in and lived there for 4 years. Now, after those 4 years, they moved out and rented it out again.
If they rented out the (replacement) property for one year after the exchange and then moved into the property as their principal residence, the owners really need to consult with a tax professional. This arrangement violates the IRS safe harbor (link below) for not challenging the validity of a 1031 exchange.
See https://www.irs.gov/pub/irs-drop/rp-08-16.pdf
