If your attorney recommends an extra liability shield, besides E&O, then form a 1-person LLC but treat it as disregarded for the IRS purposes.

I would say make sure you understand the tax situation---not a cpa but if you use it more than 14 days personally  its not classified as an investment property according to the IRS and your expenses, including mortgage interest if you have a loan, aren't deductible.

If you rather read the Regs yourself (don't know why you would), here is the link:https://www.irs.gov/pub/irs-drop/reg-115420-18.pdfBelow are our insights as to what the Regulations say:BackgroundThe Tax Cuts and Jobs Act enacted Code sections 1400Z-1, which allows for designation of certain areas as Qualified Opportunity Zones, and 1400Z-2, which provides for certain tax benefits for investing in certain Qualified Opportunity Zones.

That is to avoid issues where Smith has a $500,000 IRS lien against him, loses his property in the ad valorem tax auction, and the IRS loses its redemption rights over time. 

You pay income tax on both.Plus, it's an area where the IRS is very audit sensitive.

IRS offers many advantages for property investors and you can deduct a lot of expenses against your rental income that you can’t as a sole owner occupant (repairs like roofing, flooring, etc.).

The rules are still being worked out but might be something you want to look into . https://www.cnbc.com/2018/10/19/investors-can-get-tax-breaks-for-investing-in-opportunity-zones-treasury.htmlThis is a FAQ about them from the IRS website https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

I understand that the IRS does not treat one's primary residence as a capital investment, and thus I cannot deduct anything at all if I simply sell the house at a loss.My other option is to put it up for rent. 

In essence, we can internally make the numbers work for the even deal and keep the 1031 accurate for IRS?

If you father agrees to pay you 3X the market rate, that may run afoul of IRS rules about gift taxes.