Best way to buy a home from a family member to use as rental?

[Jeff Lever]

Hi Folks, 

My father-in-law is semi-retired, just bought an RV he plans to live out of and is looking to sell us his home for us to use as a rental at a good price. Wanted to get advice from others who may have bought homes from family members in the past, and any recommendations on making such a transfer as tax friendly as possible. Here's what we're considering....

Background: 
4BR, 2.5BA 2-story home ~2.5k sqft w/ small 8x10 storage shed, carport, but no garage
Outstanding Debt: $88k
Home Value: $250-270k 
Estimated monthly rent: $1600 (low) $1800 (expected) $2000 (high)

Where to go from here? 

From what I understand of present IRS rules, you're allowed to earn up to $250k on your primary residence and pay no capital gains tax. He bought the home like 35 years ago for $88k, and present valuations are ~$310k. Since he'd pay no tax up to $338k, and a higher purchase price would help us since we'd show lower capital gains - I'm thinking the best move is to pay $338k to minimize any cap gains we would pay when we sold it many years from now since it's not our primary residence. 

Thus, we would be responsible for his current mortgage where he owes $96k remaining (about $850/mo), we'd then offer him 1/2 of the proceeds of any rent - present estimate is ~$1800-$2000. If it's $2k/mo, we'd split the gross revenue after mortgage of $1150/mo - $575 to us for main/repair/etc...$575 to him to pay down the debt ($338k - Outstanding Mortgage $96k = $242k our debt to him - $575/mo)

I'm wondering are there any other ideas on how we can minimize our payments or our future capital gains taxes that we'd pay when purchasing a property from a family member?