You could treat it like a private sale where you hold the mortgage. In this case for tax purpose you would sell the rental property and then in future years you would list a an "installment sale" in TurboTax where you would claim the interest received and your mother-in-law would deduct the interest paid, if she itemizes deductions on her return.
Depending on the laws of your state, you may need an attorney to "close" the loan in the sale of the property to her but most of the time that is a relatively inexpensive service.
Getting the advice of an attorney and/or a local tax adviser regarding the consequences of doing it this way before you make the final decision is probably a good idea as well.
There are tax implications in both the "sale" of the rental property as well as the installment sale that you should fully understand. None of these are necessarily extreme consequences but exactly what they will be depend a lot on your other income and your overall tax situation.
There are also some estate planning issues to consider as well.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
