Right now, we're a bunch of strangers commenting on your post - we don't know your background, financial situation, W2 job, lifestyle (single, married, kids, etc), risk tolerance etc (not that you should share all that information on a public forum). 

Living in a reno while the kitchen is unusable while doing the flip yourself will test a any marriage, especially newly married people.

Marry the house.

A 1031 exchange is NOT available for owner occupied property so that’s the bad news.The good news is for owner occupied primary residences, for married couples, the first $500,000 of pain is tax free.No need to worry about a 1031, live in the house, sell it, use the $500,000 exclusion and you pay KP tax on whatever profit may exist,2.

If married you can exclude $250,000 each in capital gains if your primary residence.  

I'm ASSUMING (a bad idea, I know) that they were a married couple and had joint ownership. 

Of course I would recommend talking to a qualified realtor but I'm married to the biggest realtor the smokies have ever seen so I'm biased.

Since you have lived in the property for two out of the previous five years you could take the first $500k of the gain tax free (as a married couple).

3) Are you single, married, or about to be married?

If you move into a property acquired through a 1031 exchange and make it your primary residence, you may qualify for the capital gains exclusion under Section 121 (up to $250K single/$500K married) if you live in the property for at least two of the last five years before selling.However, gains attributable to the time it was a rental property remain taxable (non-qualified use), and depreciation claimed during the rental period must be recaptured at a 25% tax rate.