Adam, age 71, is single without offspring. Adam has recently had some medical conditions in which it is estimated that he has less than 24 months to live. Adam lived in an apartment. Due to his condition, he is now living with a sibling and will be abandoning the apartment. It is unknown whether Adam will move into assisted living, a nursing home, or stay with relatives (who will be compensated for their care). Adam owns rental property. Adam paid $225k for this property 30 years ago. It currently has a small mortgage balance. On the city tax rolls, it is assessed for $875k, so let's assume that is what it is worth. Let's assume depreciation = capital improvements so his basis is $225k. If he sells it he will have $650k in capital gain. I assume most of this will be taxed at 15%, but some of it will be taxed at 20%, depending on Adam's other income (retirement, rent). I'm going to assume $110k in capital gain tax.
Adam needs income due to his medical condition. Let's assume that Adam will need $5000 per month in addition to his retirement. How can Adam get this without selling the rental property? I am assuming that Adam's three siblings will equally split his estate when he dies.
(A) At first, I though of a reverse mortgage, but the first thing I read was that it had to be owner occupied. I also read that they are a total ripoff. (B) I believe his siblings could underwrite an equity loan for a few years. (C) Suppose someone buys a five year option-to-purchase. I'm assuming that there is no tax as long as the option price is less than Adam's cost basis. (D) I look forward to your suggestions if you have other choices.
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