@Sameer Kh, I don't believe that the 3 options you list are 1031 compliant. 

We also got nailed on the old stair handrail NOT being code compliant??

There’s expense and time involved to be compliant .

Your brother should skip the books and get the help of a tax professional from here on out.There is no statute of limitations for a fraudulent tax return or if a return is not filed due to fraud.If he has been non-compliant, the IRS generally wants to see tax returns for the past six years filed and compliance going forward.

I don't think there was any damage caused to the property because they seemed compliant but again I do plan to speak with the other tenant to see if it will affect their residency in the home.

A good real estate attorney will maintain relationships with trustworthy title companies, escrow agents, brokers, etc. so your local attorney's office is always a good place to start looking for ways to stay compliant and save money on your wholesale transactions.

He also paid for all improvements to get the building to be Compliant and fit for his use. 

If I rehabbed the attic, moved into that unit, would my 2 Airbnb units still be compliant with NYS multiple dwelling law (since I am living in the house)?

Here are a few simple steps you can employ to stay compliant & get ahead of the game:#1 Open an LLC brokerage & get an 'LLC Sponsored' brokerage license.Most states allow you to hire a ‘sponsoring’ broker as an LLC/Corporation.

(although I did have to do an ADA compliant update to a ramp railing the first year.