Unfortunately, this reassessment is unavoidable, so you’ll need to evaluate whether transferring the property is worth the potential tax increase.If a Transfer Is Not Feasible:If the potential property tax increase makes the transfer impractical, an alternative option is for your father-in-law to secure a Home Equity Line of Credit (HELOC) on the property.

What's your thoughts on me setting up owner finance on my property?

I personally use Quickbooks online and have a virtual (remote/nonlocal) bookkeeper.

And no; if you own 50% and your friend owns 50% he qualifies for exclusion on 50% of the sale. 

His explanation is spot on. 

Are there any caps on pass-through expenses?

However, I have done sub tos WITH lender consent on some commercial properties.Subject to is commonly assumed to mean WITHOUT lender consent.  

I used a hard money loan to purchase this off market deal.I rehabbed the upper two units within two and a half weeks and have a renter already lined up for one unit.

We tried, but you’re on your own with this Mr.

I avoid the multi-family market here, so unfortunately, I will not be a good go-to here, but I am confident you will find quality resources and help here on BP.