In this scenario there is no way to avoid capital gains tax. However you can arrange it to defer and reduce the tax.
You can do a partial 1031 (like kind exchange).
A like kind exchange is where you can exchange one investment type property for another of the same or similar type. so for example: you can sell a rental property and buy another using the 1031 exchange and defer taxes.
In your scenario, you are selling a rental property, but you are buying only some land that would presumably be held for investment. So in this instance you can only do a partial 1031 (the land of the rental property for the land held for investment).
When the son sells the rental home, he then buys the property from the father allocating the 1031 exchange. the father sells the property on a installment agreement. the installment agreement allows him to defer the capital gains for the life of the agreement.
1. For installment agreements between relatives, the seller must charge fair market rate interest of about 6%; and that interest is reported as short term gains in the year it is paid. Capital gains are taken as the monthly payments are made.
2. A like kind exchange has to be designated prior to the close of sale on the rental home; and you have to use a like kind exchange agent.
since this is a partial exchange involving the land portion only, the remaining percentage of the sale will attract capital gains tax and you will still have to pay 25% recapture tax on any accumulated depreciation on the rental property.
FYI: the father can avoid capital gains all together by not selling the land, but gifting it to the son.