If the two of you were simply individuals owning the property as tenants in common and neither of you owned more than 50% of the entity then you could make the case that it was not a related party transaction.My fear is that if audited the exchange would fail due to the closeness of the related transaction. 

@Patrick Fanning - I think the advise you have gotten so far is pretty good (I'd recommend getting an energy audit from energizeCT). 

I always audit my receipts.

The IRS is very stringent on education and research hours, and have shown in several tax court cases that people who just "manage the manager" will not pass the audit.

In the case of an audit, not only do you have to prove that you did at least 100 hours but you also need proof from your vendors that they did not do more than you. 

They took it back and had is audited and redone by someone "whose been doing this for a long time" and when I got it back, the updated amount due was literally a fraction of what they initially stated (my taxes due were literally overstated by like $15k)But then, someone else reviewed it one more time and again, they caught something else they "missed" which changed my amount due again and it went up by another $4k or so.At this point, I've called in my old tax preparer and she's doing her own audit so that we can compare the 3 returns TS has given me with what she gets — which is another expense incurred for me. 

Under audit, if you don't have the time log for you and everyone else you will not be able to claim these losses. 

That is a strong motivator because no manager wants the state digging into their files or auditing their accounts.

Those policies are also likely to be subject to audit. 

They first will do a thorough audit of your last 2 years of taxes for ALL entities and then walk you through where things are good and where you may be at risk and then create a tax strategy moving forward.