Looks like I've got a windfall coming. 1031 question.

[Paul A.]

Hello all. New here, but I've been a full time investor for a few years now. Anyway, I'll get to the point. I bought a small REO apartment complex three months ago for $100,000. It was totally trashed. Vandalized stole all the wire out of three units. Between purchase price and rehab cost I've got about $150,000 into it. My goal was to keep the property long term because it cashflows so well. However right as I was finishing the rehab, I get notified by the city that they are going to be acquiring my property for a city project. I've talked to the city, several other property owners in the area that have already sold to the city, as well as the appraiser when he came out to do the appraisal on my parcel. Nothings official yet but from what I've gathered I'm looking at getting somewhere between $450-500k from the city. Obviously a huge unexpected gain. I'm not complaining, but what can I do to reduce my tax bill. I guess my question is, if I do a 1031 exchange and acquire another property, which I then hold for over one year. Will it then be considered a long-term capital gain? Or will I still be subject to the short-term gains from this property.