Avoiding capital gains tax with a gift downpayment?

[Steve Lafler]

My wife and I are buying a SFH investment property with my father in law. He will be the mortgage holder and we will put up the downpayment. A mortgage broker tells me the downpayment must appear to come from my father in law, the mortgage holder.

Here's the question: How does he avoid capital gains tax on the downpayment we give to him? The "gifting" limit is 13K per year.

Perhaps if we transfer title to all three of us with a warranty deed after the close, we can deny it was a gift if the IRS asks???

Thanks in advance for any input!