A far away rental property was gifted to us. How to report rental income?

[William J Winch]

A year and a half ago, my mother-in-law gave my wife and I her 5-bedroom house in California. We live in NJ, didn’t have any interest in moving to CA, and wanted to sell it, but my brother-in-law said that he would like to continue renting it out, with him collecting the rents and paying the mortgage, repairs, and maintenance, while the house was in our name.  

Now I’m realizing we need to do something about this, as the house is in our name and we are not reporting rental income on our tax return, and we have no liability insurance in our name on the property.

Being as the house is in our names, should I have been reporting rental income on our taxes, for the past year and a half?

Can I have something like a master lease or triple net lease written up, retroactively, so that my brother-in-law collects rents, pays property taxes and repairs and reports that on his tax return? If so, could he claim depreciation on his tax return even though we own the property?

Should I be working with a CPA or tax attorney to get this straightened out? I’ve always done my own taxes up until now. Any thoughts you can give me on this are much appreciated. Thanks -Bill