Here's my situation. My parents own some land that we would like to develop. The property is ~25 acres with two nice building sites. We are in the process of subdividing the land into two lots (7 acres and 18 acres). The land was gifted to my parents from my Grandmother several years ago. My parents are not currently homesteading the land.

The plan is to build a small single family home on the 7 acre lot. My father is a carpenter\contractor so he would be building the house. The arrangement that we have is that my parents will contribute the land and my brother and I will provide the the cash. We will be taking out a construction loan for the house (~$90k). My parents will keep the profit from the land and we'll evenly split the profit from the house.

Creating an LLC sounds like the right approach, but getting a bank to loan to the LLC requires me to personally guarantee the loan. That essentially defeats the liability protection that I would get from the LLC. Plus the commercial loan rates aren't as appealing as taking out a residential construction loan. The cheapest route for financing is for me to take out the loan in my name and consider it as a 2nd home. I shouldn't have any difficulty in qualifying for the loan on my own.

The problem is that I don't own the land and I want to make sure that I don't give my self a big tax headache over this. The land has appreciated a lot since my grandmother acquired it and since my parents acquired it from her. I assume that my parents inherited my grandmothers tax basic, but I'm not sure. If they gift it to me then I would assume that I inherit their tax basis (my grandmothers's). That mean large capital gains when I sell it.

I have a few questions:
1. Is there any way to avoid paying capital gains against my grandmother's tax basis without homesteading the house for 2 years?

2. How can I pay my parents and bother their portion of the profits from the sale if the property is in my name? I assume I can simply gift them their profits, but then I pay all of the taxes which gets complicated.

I assume that I can handle #2 by transferring the completed house into an LLC after we close. That way we can distribute profits after we sell as we see fit. With pass-through taxation each person would pay taxes on their proft. The problem with this approach is that I'm worried about triggering the "due on sale" clause when I transfer the title to the LLC.

Any suggestions would be appreciated.