You have several options. I suggest you contact an Estate Attorney, a Tax Profesional and a Mortgage Broker to get advice from those who are qualified in the areas related to your question and who can take into consideration the specific financial, tax, and legal situations of both you and your father-in-law.
You should ask them about the advantages and disadvantages of setting up on LLC for your rental properties, and about a Revocable Living Trust for your father-in-laws property.
From a real estate perspective, you can purchae the home from him for any price you mutually agree, but I advise against offering too little, as it would affect the comp values in the neighborhood and potentially hurt the value to you if you chose to sell in the near future.
What you need to consider when talking to the tax, estate, and mortgage professionals is the financial outcome you and your father-in-law desire. Is he going to continue to live there after you purchase it? or having cashed out his stake in the property, does he want ot move out?
If you approach it from the perspective of the financial goals of all parties, then the pros i recommend you talk to can help you work out the best way to execute the transaction

Normally there would not be any tax implications on the buyer side, other than some mortgage taxes that are charged if you get a loan. Those are unavoidable.

As far as the seller side, if he is not walking away with any money there are no capital gains to be taxed on. Even if there were federal law allows a seller to keep up to $250k in capital gains tax free if he has lived in teh home 2 of the last 5 years.

There may be some sales tax he is liable for, but in many states that tax is waived for a transaction between family members.

Speak to a tax professional to confirm these things

Dear T:

I am not an accountant, but based on the facts you present, there should not be any real tax consequence to what you propose to do. If the home is actually your father's long time residence, there would be no tax consequence on his side as a result of the sale.

There is also no tax consequence on your side, other than for the fact that you would get an interest deduction for the amount of interest you pay annually on the new loan.

As to determining the home's value, I wouldn't rely on Zillow in a million years. Zillow derives values based on a proprietary algorithm that works primarily (rumor has it) off assessed values. In my own spot-checking of various Zillow valuations, I have found them to be completely unreliable, even with respect to their change in values over time on the same property. If an accurate value is important to you for any reason get a CMA from a realtor friend or an appraisal from a qualified appraiser.

There is another tax to perhaps think about - estate taxes. I don't know the state law in North Carolina, but you may want to consider eventually getting the home out of your father's name altogether - especially if you are the person who would eventually inherit it. This is presuming of course that your father agrees with this type of plan. You would want to consult an attorney on this.

Best of luck,

Chuck Mineo

Dear T.

Since as a real estate agent, I am not a tax adviser, I'm afraid that I don't know the tax affect that this will have on either of you. From my viewpoint, I don't see why, you father cannot just sell you the house on a simple sale for the amount that he has in the house.

By the way, Zillow figures are not always accurate. They are only dealing from the large area and do not know the current figures for the subdivision or smaller area that your father's house is located in. If you would like for an agent to do a Comparative Market Analysis for you, I can do one for you. It still does not matter if you want to buy the house for $86,000 and your father-in-law wants to sell it for that amount. When it comes down to market values, a house is worth what the buyer and seller want to pay and accept for it.

You should check with a CPA, tax specialist, or tax attorney about the tax ramifications.

I know this isn't much but I don't know how else to help you.

Have a blessed day.

Sara Rich
Rich Properties

Well, your father will not have to pay any taxes on the sale of the house - even if you paid him market value. If you paid him $146,000 for the house, you would have great equity in the property, and he would have that $60,000 to live off of. (with no capital gains taxes)
You could then get a mortgage for the $146,000 at the Principal and Interest payments would be around $800 if you got a loan at 5.25%. (of course this is just an example) Even if you only paid him $116,000 for the house, your payments at 5.25 would be about $100 more than you are paying now. You will not have to pay any additional taxes if you purchase the home, other than property taxes...and transfer taxes which are not that much.
If you already own two rentals, but do not own your primary residence, and have not lived in any of the rental houses for the last 3 years you could also qualify for the $8000 first time home buyers tax credit!
However, you may have to prove, "proof of funds" to cover 6 months of PITI on your rentals to get the loan.
However you really need to talk to an estate planner. If your father is low on funds, and he then gets this cash, and he has to go into assisted living, or some other medical facility and he is on Medicare, they could require him to pay a hirer amount than if he has no money. You need to really investigate all your options with a mortgage broker, and an estate planner to see what the ramifications of each option are.