Now upstairs, there is a 3 bedroom condo which is renting for 1200, while her medical office rents for 1700.

Always give yourself a good exit, one your can exercise at anytime.

If this is just an exercise to learn how to run numbers, I would suggest finding a different property.

Now you do need to account for the current collections and back that out of the equation but this exercise should help I hope. 

I am a 60 year old medical professional and am trying to get my 20 and 22 year old children turned onto BP as well.We want to step away from the Turn Key seller but being out of state we need to put a trusted team together in Indy.

Aiming for the traveling medical professional demographic.

And like always this is a relatively simple exercise for your tax professional.  

sounds like you have it right...side note, IRS liens only have priority for a set period of time, after-which, if they do not exercise their rights, they must abandon the property.

You can exercise your option, assign it if your agreement allows you to do so, or let the option expire and walk away from the deal.

Questions like this are the blocking-and-tackling of real estate investing, and going through these exercises for yourself will help you begin to get a sense for your market--rental rates, sales price metrics, etc.