Retired - Buying/Selling/Holding properties - tax implications

[Jack W.]

My in-laws are retired, they have owned a "winter" home in AZ for a couple years, and a within the last year or so purchased a "summer" condo in MI after selling another home in MI to be closer to us and their grandchildren. Now we have an opportunity for them to buy a lake property next to ours. Question is: what is their best option from a tax standpoint as senior citizens? They reside in each current home for about half the year (summer/winter). The AZ home will not be sold. But the condo in MI could be. I don't think they want to hold onto 3 properties. They could rent the condo as an option. Both current homes are owned outright. They will probably take a loan/mortgage out on the 3rd (lake) home just to keep their investments ticking along. Does selling the condo now come with a big tax hit - as it has been held and lived in for less than 2 years? Does it make sense to hold the condo and rent it for a period of time to capture any tax benefits? I think their primary residence is considered the AZ house. Are there capital gains tax problems/options here based on their selling of the condo - profit or not? They didn't buy it as an investment but I'm fairly certain they can break even on it if not capture a return based on their upgrades after ownership.

Sidenote: this is my first forum post...I skipped the introduction post...sorry. I also haven't gotten around to choosing a profile pic...sorry again. I read blog posts and scan the forums daily if not weekly. So far I've enjoyed all the reading material.