Should I give Dad back his gun?

Ask your wife how she feels about your dad having the gun back.

Then make a choice between placating your father and having a wife.

I would see a lawyer asap about the stipulations in the sale document. Is this a "life estate"? Most life estates don't come with the condition that the person may remain in the home when they are a danger to themselves and others (which your dad is).

I would encourage you to remove all weapons, ammunition, power tools and sharp objects until you can get dad seen by a neurologist, geriatric psychiatrist or behavioral health team.

If he has an episode of rage and threatens, call 911, have him transported to the ER and tell them that he is no longer able to be safe at home. And that you and wife are in fear for your safety.

Eta, is dad ex-law enforcement, military or organized crime?

It sounds like not very good decision making all around, and it sounds as though it isn't working out well.
Does your Dad suffer from dementia? Does he have a history of violence?
Is there any missing information in this story that you can give me so that I can understand why you bought your Father's home, assuring him he could live in it for life (which was unrealistic assurance on the face of it)?
Is there some information you can give me that might help me understand your questioning whether to return guns to an elder who has already threatened the head of household with death by same?

Unequivocably, hands down, NO.    The fact that he threatened your wife, carries a revolver everywhere, and isn't conforming to safe  (let alone your) standards, suggests to me that it's time to ensure he never gets another revolver, or other weapon, but also might be more suitably cared for where there's much more monitoring available to protect others.

You might want to discuss this with your local police, right now.