So, you net $10K on this deal.If I'm misunderstanding the deal, please explain.

I may misunderstand some parts of what you want to do, but here's a lot of bad news...in short, I'm not aware of any shortcut loopholes where you can accumulate thousands in debt/mortgages (aka risk) and then pass that risk off to an LLC with no credit cost to you.

She said we are misunderstanding that rule and we will pay capital gains on the time we rented it out...So, I am very confused about what the rule even means if I am misunderstanding it.

Tax benefits are a bonus but not the goal on its own.What I do want to add is that you somewhat misunderstand (or at least do not clearly articulate) how accelerated depreciation affects your taxes.

Ivory,I apologize for the misunderstanding.

I hope this clarifies the misunderstanding.

(For anyone reading this,  please don't misunderstand my meaning of that...we know there are many who are starting out with much less...and we greatly applaud you for having the courage to move forward with your aspirations...Tammy and I come from very meager backgrounds and it has taken us many years together ((25 yr anniversary this year)) to get to this point...so moving out of that protective nature (finances that is) is actually fairly difficult for us...her especially ...should've been there 3 years ago with that first property...lol) anyway she was glad to here that from someone other than me...so thank you.I will have to look into the types of investing you mentioned...of course I have read about them and have a general idea...but the inside baseball of those types of investing are Greek  to me at this point. 

IMHO, a signed agreement is required in all partnerships even when it is between two close siblings, because it helps prevents misunderstandings.  

You have a very fundamental misunderstand.

Diane - no they did not misunderstand me.