If you've lived in that house 2/5 years as your primary residence, you can also sell it tax free up to $250k single/$500k married-filing-jointly. 

U want your parents to talk to their CPA FIRST.. if they go the development route they are now ( depending on the amount of units) creating inventory.. which will be taxed at ordinary income rates ( very HIGH)if they just sell they can 1031  and move on to something else.. many times when you run the math consider the risks of a partnership.. the sale of the land is far better than thinking your going to make some profit.. 

U did the right thing..

Also you can still get the 250k limit even if you don't qualify for the full 500k married filing jointly.

Kind of, we dissolve the partnership (or maybe not, just the joint ownership of two houses), but we each keep a house, without selling taxes?

I truly do feel like my efforts to get to this position of being able to purchase in the first place would be significantly undermined if I went ahead and split the home through a jointly owned LLC. 

There are several companies out there that have catered specifically to FSBO's, like Help-U-Sell.  

It was the movement of U Haul trucks and trailers .

Interestingly enough "the powers that be" have finally announced U3 is at 5.3%OP, IMHO there's no '08 crash on the horizon.Alan where did you see U-3 at 5.3%?

I'll send u an invite.