Subject2, Primary Residence, Partnership Title Question

[Steve L.]

I have a Subject 2 property in escrow. One of my contractors wants to move in and occupy it at his primary residence. For me finding the deal we have agreed to split the equity 50/50. He will responsible for all carrying costs, maintenance, and day-to-day costs.

All my Subject 2 deals I do in a trust. He is very flexible on how title is held.

Idea #1 - We each own 50/50 of the beneficial interest of the trust. He takes his primary residence exclusion on all his costs and when I sell it I would get long-term capital gain tax rate. I don't know what I would put on my Schedule E for this property?

Idea #2 - He owns 100% beneficial interest of the trust. I record a 2nd deed of trust or an option agreement to protect myself. This way I don't think I would need to mention anything on my taxes.

How would you guys do this? Any feedback?