Will a Gift of Equity to a family member result in capital gains?

@bkaps  I am not sure I am following you on the actual scenario -- what I get is that:

(a) the seller/father bought the prop for  $75,000 ( when  and how was the prop. used all these years ? )

(b) The owner is selling the prop. to son for  $300,000.  Should we assume that this is  "at arm's length " or what ?    Is this  FMV ?

(c) If one assumes that this is "at arms length " transaction , then the  gain for the seller is :

                  Sales Price ( $300,000 ) LESS any sales expenses including commission . transfer taxes  etc.)   LESS adjusted basis.

                  Adjusted Basis  =   (Acquisition Cost  + Cost of improvements  over the ownership period)   LESS  Accumulated allowable  Depreciation ( whether recognized or not )..

(d)  Given the above and based on the facts that you have shared, there will be both Capital and ordinary gain for the seller.

(e) Please also note that because this is a transaction between related parties, even if  at arms length, there are a few restrictions on the buyer  ( if he/she were to dispose off the asset.).

Is there more I can do for you ?

Please note that " my client" and use of TubroTax for preparing such tax return(s)  raises  red flags.  Please see TurboTax usage  restrictions/license .

The transaction will be treated as a transfer that is part gift and part sale.

As such, Treas. Reg. § 1.1015-4 will control.

https://www.law.cornell.edu/cfr/text/26/1.1015-4

I highly recommend that you seek guidance from a qualified tax professional.