Logistics of transitioning primary residence to rental + add partner

[Andrew Nguyen]

I own a primary residence in CA that I’ve lived in for >2 years. It has a 30 year fixed mortgage and low interest rate. My sibling/business partner would like to give me X amount for 50% ownership and we transition it into a rental (I am moving, but remaining in CA). I would be using that X amount as downpayment for my next/permanent primary residence. Is there any easy way to do this while avoiding paying taxes on the deal in this moment, and also avoid uncapping the CA property tax rate. For instance structuring the $$ as a gift from him to myself as help for downpayment instead of an official sale.  Assume full trust between us.

Could we start a new LLC and run all the finances (rental income, expenses, taxes, depreciation) through this at 50/50 ownership, then use ‘pass through taxation'. Again, assuming full trust between us; could this be done without adding him to the title, like a handshake deal, or would the CA franchise tax board figure this out and realize a 'transaction' took place and the property taxes need to change. Could this be done without putting the property title under the LLC? Basically just using the LLC for accounting purposes and the liability covered by robust insurance. If we add him to the title or move the title under the LLC, I believe this would uncap the current low tax rate which defeats the purpose.