Following are my views on your transactions - please correct if needed.
You are giving your son a property with the fair market value of $170,000 and in exchange you will get $110,000 .
So - you will give a gift valued $60,000 or $60,000 / $170,000 = 35%% of the property.
Your basis on the property is $110,000 (purchase price) + $20,000 (assumed improvement expenses) = $130,000.
1. You sell your son 65% of the property for $110,000. Your basis on that part is $130,000 * 65% = $84,500.
Your capital gain on that part $110,000 - $84,500 = $25,500
2. You gift your son 35% of the property with the value $170,000 *35% = $59.500.
Gift is not taxable income for your son. You - as a donor - might has to file a gift tax return as the gift is above $13,000 (for 2009) per person per year.
However there will not be any gift tax unless her lifetime limit of $1,000,000 is reached.
3. Your son's basis in the property $110,000 (purchase price on 65% he would purchase) + $45.500 ($170,000 * 35% - your basis on the gifted part) = $155.500
Let me know if you need any help.