Tread lightly.

He said since I have a full time job, the hold period is going to be 3 yrs, and that the project is already built and will have a light value-add component he thought it wasn't unreasonable to classify it as capital gains although it wasn't a bulletproof argument.

Code enforcement is showing up tomorrow to assist me in making the unit(s) conforming--hopefully they will be able to shed some light. 

. - demo fully guy everything in the interior- replace and update all the electrical and plumbing’s - add central air/HVAC system- replace both front door and back door- replace all windows about 12-15- new flooring, new kitchen, - add recess lighting - new hot water heating systemI am expecting to try and get the house under contract at 450k, the ARV will be about 650-675k.

This would also give the opportunity to replace low light fixtures with higher can lights. 

for me if I jumped back into rentals depending on what class they were.. for C class where the tenant basically wont do anything proactiveI would do it quarterly  that your changing filters checking smoke detectors  and our going to pay to replace light bulbs..

Your first year will be light.

. $200 to me doesn't sound outrageous unless new facts come to light I've not seen. 

This article brings some light to thoughts surrounding estate planning https://www.biggerpockets.com/blog/trustees-executors-estates/ that can get you started with your research. 

I normally leave that out and inform the buyer if it is a light, medium or heavy rehab.