So I'd say the seller(s) should consult with an attorney or accountant, but it's possible they may owe much less than 15% or nothing.Also as Account Closed said, seller financing is also often attractive to people who are concerned about taking a big tax hit in one year - instead it's "pay small amounts as you go, over time as you receive the money" and is great for a number of reasons (no or a favorable interest rate for you, no bank BS, build long-term relationships and credibility with future sellers, possibility to discount in future with a payoff offer, etc.).It's worth having in your mental toolbox even if you don't use it on this deal.

Population increases? 

Both have RE values that have increased for 50+ years, just ask someone who passed on an opportunity in the 70' or 80's.    

My attorney said I can spend the money to get it to code then try to sue the sellers to get my money back.I am not attracted to the suing option so I am trying to contact the sellers but they live out of the country.

I suppose it's based on whoever is the most attractive target to sue and get money from.

Looking at the outside, it needs work to increase it’s curb appeal.

We know that once we move out, our rents will increase with the other unit opening up.

If they dont like that, you can redo the entire lease, return the entire deposit, increase the rent and the security deposit, and have them sign an entire new lease.I tell me tenants that are roommates that I collect the full rent, how they get it is up to them.  

I have been in my house for 1 year this month (Aug. 2016).I have tried use the calculators on here, to see if I could make this property attractive to anyone, while still at the very least breaking even.

The area maybe C or C+ but with those rents, it's sounds like you would be attracting D and F tenants.