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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75649  
Subject: Re: Managing Money to Cover Nursing Home Costs Date: 6/3/2001 11:44 AM
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You probably will need the services of a CPA to work out what is best in your case. That's because you have some major tax issues to consider.

A few thoughts--

Right now you mothers condo will be inherited on a stepped up basis, so no income taxes are due on any appreciation. Similarly if she has owned the property 5 years and lived there at least 2 years, she will be able to exclude any capital gains when she sells it. However, renting the property will convert it from a home to a rental. This will complicate some aspects. So I would think a CPA could work out for you which is the best overall for you.

If she sells the property, investment at 8% yield in corporate bonds (ie laddered maturity bond portfolio) should come close to financing her current needs (after income taxes). However, there is no inflation protection and decreasing interest rates could cause slow erosion of this income. However, it seems unlikely that her assets will be depleted under the circumstances.

Of course in addition to her care costs she probably has other expenses such as property taxes, insurance, and maintenance fees on her condo. These expenses should also be factored into your thinking.

The key to rental property is often finding good tenants. If you know some one who would take good care of the property, or if you are experienced in managing rental properties, that would be major pluses in making the decision.

Overall, I would favor selling the property and investing the proceeds unless the CPA finds clear advantages to renting it.
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