Don't want to dig a deep hole while in this situation.

That's trying to fit a square peg into a round hole.

By my calculations you are in the hole before you even start the month at that list price.

Is the city bearing responsibility in the form of monetary fines in any of those cases?

I'd try to rent across two tax years but less than 2 total years e.g. rent this Sept until next March so you show two tax returns with rental income etc, and then he moves in and reclaims his prop 19...That at least would be my initial plan for experts on the tax issues to poke holes in.

Do I need to hire engineer to assess the structure ( we don’t think will remove any wall but might need a hole to connect hood with outside).

@Joe S.The people I know that have filled pools have poked holes in the bottom (I'm pretty sure this step is very important so that it doesn't fill with rain water and cause you problems in the future) and filled it with whatever nonhazardous material they could find. 

I want to do the right thing for them, but at the same time do not want a hole in our lease that you can drive a tank through.Does anyone have a clause in their lease that you would be willing to share?

My electrician and her helper knocked the house out in a week and left very minimal holes in the plaster, no more than 2 very small holes in each room.

There are ways around it but a rule of thumb is you can only have one FHA at a time unless if your family size increases, you move over a hundred miles away, and a couple other loop holes.