Primary Residence Sale -- $1.65mm appreciation -- How to Minimize Capital Gains?

[Matthew Samson]

Hi All. So excited to be a new member in the BP community! 

My parents in-law bought their primary residence in California for ~ $350k and now it's worth over $2mm. Obviously, their capital gains are well beyond the $500k primary residence exemption. They want to minimize their tax and/or refinance burden, to keep as much of the capital gains as possible to help fund their retirement. They would also like to keep living there for the next 3-5 years, before downsizing. 

So my question is: how can they minimize their tax burden? Luckily, my wife and would be in a position to buy their house from them at fair market value, if that is the best option? We would also have the liquidity to explore other options. 

Of course, we'll be looking to consult with a CPA on this! We would love to get some directional help from the community first, so we can ask better questions moving forwards!