To clarify the upon "upon request" part of your reply:  you're saying that after I buy the deed to a property with an incorrect assessment (in my case, it's assessed as land only but has a home on it), the taxpayer could discover that their parcel was incorrectly assessed and then use that technicality to request that the state void the tax sale?

Based on my reading of other forum posts, with the same taxpayer identify, both of us will need to be on the same title of the exchanged property, is this right?

An individual qualifies as a real estate professional for the tax year if -a. more than 50% of the personal services performed by the taxpayer in all trades or businesses during the tax year are performed in real property trades or businesses in which the taxpayer materially participates; The rental or any other activity that you do not materially participate cannot be counted. andb. the taxpayer performs more than 750 hours of service during the tax year in real property trades or businesses in which the taxpayer materially participates., the rental or any other activity that you do not materially participate cannot be counted.

Maybe- if the residency happened first then yes up to the limits of $250k profit for a single taxpayer and $500k I’d married.  

Also keep in mind, rental income/losses are passive and can only offset other passive income unless you're a small taxpayer or RE pro. 

Depending on your area, tax payments could vary.

Also, when presenting the seller financing option explain to her that deferring tax payments also allows her to save more as she's not paying all these high taxes at once!

Sometimes (as an example) you will say, "I will deed the property back to you for $5,000" and the taxpayer will say, "I'm not going to pay you $5,000, I happen to know I can redeem for what you paid the state plus a little extra interest." 

The taxpayer might be able to counterclaim for redemption.

I have found taxpayers can be tremendously creative.