"the funds passed through a 1031 facilitator"

That would be reportable as a failed exchange, then.

"It was inherited in 2021, when taxpayer parents passed away. Tax payer and his sister lived there after parents passed away.."

"My Client sold the house that he inherited form his parents and use the proceeds to purchase two homes."

This changed in 1997. Individuals who sold their home at a profit could roll over the proceeds of the sale into the purchase of another home to avoid paying any capital gains taxes (deferred). In addition, the old law permitted individuals over age 55 to claim a once-in-a-lifetime exclusion of $125,000 in capital gains resulting from the sale of their home.