Hello all,

I am currently in the process of buying rental property that will serve also as my primary residence from my uncle. Because of our relations, FHA rules it as a non arms length deal, and 15 percent is the minimum down as apposed to 3.75 percent. I've been looking into having my uncle gift equity, but we are both inexperienced in this matter, and he believes it will significantly increase his capital gain. Is he correct? Here are the details:

Agreed sales price: $135,000

Adjusted sales price to include 15 percent gifted down payment: $155,250 

Approximate market value: $170,000

Property was purchased by my uncle as an investment property in 1995 for about $15,000.

I understand that him and my aunt can gift about $15,000 each without reporting it, which will easily cover my down payment of 15 percent ($20,250), but how should this be documented, and how much will it affect his capital gain as opposed to selling for $135,000 without gifting? 

Appreciate any and all help, as this could be a major deal breaker in this, and future deals. Thank you.