Funds/check cut to purchaser at closing? Need advice, Legal or not?

[David Huynh]

Hello BP,

I will be purchasing my friends SFH for 170k. It is appraised and the current market value is $210k. May I draft up a purchase agreement for 210k and have him cut me 40k at closing?

I would use the funds for drain tile, new roof, cosmetic things, and etc. He figured by the time he'd  work with a realtor and have the issues addressed, he'd walk away with 180k max - so he figured he'd just pass it off for 170k to me. What are you thoughts? Is this legal? Will he have to pay a capital gains tax on the extra 40k?