1031X from house flip to personal residence

[Jordan Northrup]

Good afternoon everyone,

I have a question that you may be able to help me with.  My mother-in-law has a property that she owns free and clear that needs to be rehab'd and then sold.  She'd like me to flip it for her.  After I rehab and sell the property, I'll have to pay her, pay the realtor, pay myself back for the rehab, pay capital gains tax, and then whatever is left over is mine.  In order to minimize my tax liability, I was thinking I could 1031X the profit into another property.  One thing that came to mind is that my wife and I are looking for a new home.  Could I take the profit from the flip and 1031 it into a single family home for my family...like using that to provide a portion of all of the down payment?

My mother-in-law's house could sell for around $580k based on the comps.  she'd ask around $400k for it, I'd sink $50k into the rehab, pay 6% for a realtor, etc.  For the 1031X to work, does the value of the new property have to exceed the value of the old property?  Or does the value of the new property have to exceed the PROFIT from the old property? 

Let me know if I'm looking at this the right way or not.  Thanks!