When purchasing Real Estate, if the money came from someone else $500k directly to escrow and the property is in the name of an individual. When the asset is sold after 2 years and the individual keeps all the money, is the profit the one taxed as capital gains only? Or because the individual is keeping all the money that wasn't his (with permission of the individual that paid for the asset) will the whole $500k pay some sort of tax?
That is a really ambiguous question - if someone gave you money, it really doesn't matter what you did with it. The money they gave you needs to follow tax laws related to gifting. If you invested that money and made a profit, you need to pay capital gains on your profits unless you have done something to off-set or delay paying those taxes.
At the point someone gives you $500,000, they are subject to a gift tax (so they would be paying). Once you receive the money though, it would be yours free and clear so you would only be subject to the capital gains (the 500K would be part of the basis).
NOTE: I'm not an accountant, so you should really check with one and give them your detailed specifics if you are going to go forward.
There is an easy fix for that, but I would need more info to give you the best solution.