To cash-out refinance or to sell a family home?

[Alissa Castellanos]

I need help figuring out a best course for my mother and her beneficiaries. My mother owns a fully paid home with a minimal cost of living. She needs assisted living which will greatly increase her cost of living and therefore require her to withdraw more from her traditional IRA, increasing her income taxes. We are trying to decide between keeping the house as a rental or selling it. If she sells, she can pocket all the money tax free and live off of it for several years, leaving much of her IRA in tact. But, she could cash-out refinance it and rent it at least covering the PITI expense with small cash flow. But, if she passes, her beneficiaries will be responsible for any capital gains if they need to sell. I spoke with a Real Estate focused and recommended CPA who leaned toward selling for the lump sum tax free money but I'm still not certain it's the right course. Being of the long term investment mind, maybe I'm biased. The other issue is the house is located about four hours away from all family with the vested interest and is in need of many repairs. So some of the money from a refinance would need to go to repairs including some big ticket items (roof, heating/cooling, septic). We could build equity immediately from repairs and refinance again, the trouble is someone being around for all the work to be done.

The primary focus is my mother not outliving her money and watching a bunch of it get sent over to uncle Sam. I want her to not have to penny pinch in order to keep her IRA withdrawals low, but it's also difficult to watch a family home disappear. Selling is the least amount of work, but we'd also leave a ton of money on the table selling as-is, and I think the only way we could consider taking the time and headache of repairs is to repair it to keep it.

What does this mastermind community think? I'm specifically looking for the big financial and tax pros and cons to all options, and open to other strategies I haven't mentioned and maybe haven't thought of. Thank you!