. $500,000 was tax free due to being married.  

Many banks handling tax escrow accounts for mortgages have mistakenly thought there was one tax due twice/year or totally missed one of the taxes.Investors should research the SEV and the Non-Homestead property tax millage rates to project what the property taxes will be after adjustment.

You are a high w2 earner, The house is worth 110k today, you are buying from your grandma for 60k in exchange for free rent for life, upside ARV of 200k.The costs of owning the house will help provide tax relief on your high w2 earnings, you are buying a great chunk of equity that will pay off in the future, and you and your grandma are doing each other solids. 

It is amazing how many times I have seen the cash flow represented as rent - PITI and to compound the issue they did not realize the ADU would increase their property tax.   

So yes you can exchange it to save capital gains taxes on $266k plus 19 years of depreciation recapture.

It seems like every city, county, and state has its own rules, permits, and tax requirements for short-term rentals, and I’m finding it overwhelming to navigate all the different layers of compliance.For example, some places require business licenses, transient occupancy tax permits, or even special zoning approvals.

I could also see 15% corp tax and the whole no tax on tips thing.

Our dollar is losing value so you need to be with a solid operator in institutional assets that cashflow in markets while hedging inflation with tax benefits. 

Can anyone recommend software which would accept monthly payments (from me to seller) and create proper 1099 forms for tax purposes at year end? 

It's all about how they are OWED this that or the other....