If the money is spent on "repairs" making the house more usable, it'll probably be a higher return than painting the walls a different color and installing new lights.Many remodeling projects will have no net gains in property value so be careful how you spend the money.

In the end, you are using lazy money to invest in real estate, making two returns on one dollar, getting tax benefits so you are likely not paying tax on your distributions or gains and investing in real assets that produce cash flow. 

I found my own investing sweet spot by investing passively as a limited partner in a syndicate where I get all of the benefits of real estate investing (cashflow offset by depreciation, leverage, appreciation, long term capital gains, ability to 1031) and in addition I get to leverage a professional team. 

Looking for a South Carolina CPA who is investor-friendly and can assist in the following areas:Buy-Sell AgreementsBusiness Sale strategies (long term capital gain spread out over 5-10 years, etc)Solo 401(k) plans filing 5500 formsPro-Active Strategies, not just tax preparationThanks for any help you can give, needs to be licensed and familiar with South Carolina.

This is a massive simplification, but in this situation your tax liability would be based on the entire 35K recapture plus the 50K cap gains.

Ask yourself what exactly you hope to gain from this program and whether or not it can be achieved in another way.

Other Info: Primary residence in NH has equity of $400k + Rental in NH has equity of $260k+ (Capital gain on $120k?)

The gains would be tax free to your parents, as they owner occupied it for at least 2 years out of 5 years. 

Payments that you make normally fall into one of 3 buckets100% of the payment can be factored in somewhere on the returnPartial payment can be factored somewhere on the return0% of the payment can be factored in somewhere on the returnHouse-hacking also has considerable tax implications in the event that you want to sell this property.You can potentially defer a portion or all of the gain on the investment property with 1031 exclusion.You can potentially exclude a portion or all of the gain on the personal residence with section 121 exclusion

We lost his money on one, and while it didn't hurt the family dynamic, my wife and I hear about it from time to time (the latest being that he is still burning through his losses on his taxes, since he doesn't have enough passive income/gains to use the whole loss yet).Stories I have heard: there are families that have been completely decimated by going into business together, and there are families that have run successful multi-generational businesses.