However, this means you’ll need to comply with the annual filing, franchise tax, and reporting requirements in both states.

According to our understanding:1) California does not recognize REP status, but we could claim it on our federal taxes, is this correct ?

Joint tax return?  

Yes, do the tax exchange if you can.  

Any advice on what setup is easiest and most tax advantaged?

@Steven HsuBigger Pockets is a great place to find a real estate tax accountant.A good real estate accountant can save you thousands of dollars by leveraging entity selection and formation, tax deductions, cost segregations, bonus depreciation and tax planning.I recommend finding an accountant who specializes in real estate taxation, business taxation, financial planning and tax planning.You may want to consider working with your accountant remotely to expand your options.I would also recommend looking for a accountant willing to work with you throughout the year.

Over the years, I’ve gained hands-on knowledge in a variety of areas, including tax liens, tax deeds, rental properties, and fix-and-flips.

Finally, even with a substantial discount, the house may not be worth it.

Finally in the mix we had Covid, which pushed a lot of people out of big cities up to our beautiful area with lakes, rivers, mountains, etc. and housing inventory is crushed! 

Some say we have to buy the house with them or we paid too little for the property and finally after going back and forth and submitting all our paper work and paying for appraisal they now tell us they didn’t realize that the property had so many bedrooms and they said they do not loan to properties with so many bedrooms.