You'd have to recognize 1250 gain of course but you wouldn't have to prorate for NQU.Moving back into a property that has been a rental blows the exception. 

Do detailed scopes of work and do detailed release schedules that match obvious progress points that a homeowner easily recognizes.

With that being said I also recognize my own fault in analysis/paralysis. 

My initial thought is that the seller would have to treat this transaction as a sale of property and recognize any long-term capital gain recognized from the deal at the time of the transaction. (100% gain recognized up front, assuming no 1031 exchange is utilized).

Your initial entry is almost correct - the entire $39k would not go to the deferred gain, as a portion of the gain would be recognized. 

All of his concerns are irrational so I recognize he may have issues.

@Zach LemasterHi Zach, I recognize your name you are the guy in charge of Rent To Retirement, I meant no disrespect by my message I just wanted to get more information on something I had a lack of understanding of.

This has the effect (for me anyway) of causing me to have to dig deeper to determine a poster's credibility if I don't recognize their name. 

And it seems fair that they could/should be recognized.

If you learn the basics of deeds, contracts, what rights are transferred in different situations and then you can begin designing transactions without using your money or little of it, what you need to recognize is the problem an owner has and then solve the problem, it doesn't always require a full sale in 30 days!