It is tax free in the sense that you will not owe taxes today on the cash-out.

You may be able to deduct mortgage interest and property taxes before the property is in service. 

I’m in the 33% tax bracket through my real job and this could be a big difference in taxes owed if we sold the property?

This tax base benefit goes away at your father’s death.

I've heard lawyers argue that it does.  

Usually, a lawyer has access to those documents only.

Home went to tax sale county kept excess proceeds.

@Tyler Speelman, A 1031 exchange solves the tax issue. 

I’m sure you won’t be verbally assaulted about how greedy you are Basically they were gifted $60-$120k tax free. 

You and your legal, tax and financial advisors should review this transaction in greater detail, especially the PLRs, to ensure you understand the significant risks involved and are structuring the transaction as close as possible to the PLRs to mitigate some of the risks.