Not with your mother in law.
Help me think this through - Page 2
You need to talk to a CPA. When I tried to buy my parents piece of property - to keep it out of foreclosure - for a $1 I was told when I sold it for fair market value, I would have to pay capital gains tax on the difference between the $1 and what I sold it for. It would also be worth asking if there was tax implementations for selling property so far under market value. (I'm thinking about the people that short sale and if the bank "forgives" what they owe, I've heard the IRS can tax that amount.)
I think there is an exemption from capital gains tax for your primary residence.
That was my first thought too. I'd be so upset if someone in my neighborhood sold their house for $1 and devalued all the surrounding homes.
Where I'm at the real estate agents enter the sales price into their multi-listing database and that is what appraisers base their appraisals from. There isn't a formal "recording" of the sales price. If you take out a mortgage the paperwork might be filed at the courthouse but even that isn't a reflection of the sales price (it doesn't show if there was any kind of down payment - just the total of the amount borrowed). If you sale your home on your own without using a real estate agent the price won't be in their system, either.
So, if you do all of this through an attorney the "sales" price shouldn't be recorded anywhere. And, with mortgages outstanding, my guess is you won't be purchasing the house for $1, you'll just be purchasing it for the outstanding balance to pay off the current banks.
If there is a lot of equity in the in-laws home you may want to talk to an attorney as well as a CPA to see if the equity would be considered a gift. If your in-laws are elderly, without a lot of assets, etc., you need to talk to someone about the five year look-back period on Medicaid (if you think they might need nursing home care in the next five years and apply for medicaid to help pay they'll be very interested in this house exchange).
But, personally, if I were in your shoes, I'd find another house and only put my kids through one move. For me, the risks of everything going wrong and Murphy's Law coming in to play far outweigh the benefit.
Best wishes on whatever decision you make.