And beyond your motive, yes, it is taxable income to them if it is forgiven.

Dividends are still probably taxable as ordinary income at his tax bracket, not long term cap gains.Research using options, notes (or a combination) in tax deferred accounts like pensions plans, IRA's, 401k's etc.Instead of being a lender, consider owning an equity stake in the properties & holding it long enough to utilize a 1031 tax deferred exchange.

They accumulate tax-deferred allowing you to grow your wealth much faster, compared to a taxable account. 

To encourage people to take less write off's to have more taxable income.

The IRS allows/requires you to depreciate your property, which is a paper tax deduction, that offsets the taxable profit you make each year on the property.  

I assume I would be limited to my gross taxable income received from the rental?  

Then your name is still in there along with the address -  the lender just sees this as asset protection and doesn't even take a second look.By adding your LLC as the trustee, it will add yet another layer of protection as well.Ron LeGrand along with many others have excellent material on how to do this.Of course before making any title or deed changes, consult with your CPA to be sure it won't be a taxable event!

I offered him $500 for the property (a two family home) and to pay off his taxes ( 10k ) which came off my taxable income..... the next day we were signing papers and i was paying off the taxes.

It is the exact same gain whether you paid $100k cash, financed $50k or financed $100k.Accordingly, cash-out refi is not taxable when done.

I gave away ~50% of my taxable earnings (my earnings are not high - in 2022 I was below my area’s average household income) in 2022 (and I suspect 2023 will be similar).