Haven't owned investment for 366 days and prospective tenant wants an option to buy

[Paul Lee]

HELP all advance 1031 professionals and CPAs. I have two CPA's with 2 opinions and now I want the communities opinion. 

So I listed an AZ property I bought as a 1031 replacement and closed on 6-30-22 for rent @ $6000 for approximately 2 months with only 1 application (that failed financially) and all similar feedback from all prospects (too dated). 

I then remodeled the property and posted back FOR RENT (not sale) at $11,400 just 2 weeks ago (01-30-23). Even at this price it is about a 5cap.

I received a lease offer from a prospective tenant who also submitted a purchase contract at an attractive price to be closed in July 2023 or sooner (they said they would rather purchase than rent). Which peaked my interest and it is a number I would accept.

I have a pretty large gain as this is a 3rd 1031 turn and I would want to 1031 again (or at least try to (subject to replacement property availability).

First CPA opinion. Go ahead and sell it now, because your intent was always to rent the property and just document everything well (not listed for sale, not your intent)  OR do the lease with option but I'm at risk. CPA feels under an audit any option to purchase accompanied with a lease shows you are probably circumventing 366 of ownership and it would be just to postpone for future 1031 and would come under question. (I agree with this that it would be under question, but also thought this would be okay as it is 366 days and that it doesn't matter when a purchase was written).

2nd CPA Opinion. There is no rule/ruling that says you can't enter a long sale contract as long as it closes after 366 days ownership and IRS would not question this. CPA suggests do a lease and an option agreement, but do them separately with no consideration for rent credits. (I've read about this (right here on BP) to avoid it being a land contract in the legal sense and separating them makes sense).

Questions

1. Should I sell now under 366 days ownership and roll the 1031 gains to a new property with under 366 days ownership of this property?

2. Should I lease now with an accompanying option (in the form of a long closing purchase contract) to be beyond 366 days or more ownership) and roll 1031 at that time?

3. Just lease the property to someone else with and not enjoy a really good offer from a prospective tenant who is head over heels with the property?

I should add I do not believe this tenant will lease the property without an option/long close contract as they have many times verbally stated they feel they are throwing money away renting. That said I have two other tenants that may lease the property I believe but it is a poor cash flow scenario (5cap) so I'd rather go buy a MF building or something else with the sale proceeds.

Thanks BP community!