As a pass-through entity, there are no particular tax benefits except that it helps to fend off an IRS audit by showing that you run a legitimate business and all those deductions you claimed were legitimate, but ONLY IF YOU KEEP GOOD BUSINESS RECORDS and do all those things above like write checks and operate like a real business.

 @Ashton Ferrazzo,Yes, using the tax assessment from your county is the safest way to go, unless you think that is not correct and you can allocate more to building, but you should be able defend your allocation if ever audited. 

@Steven Hamilton IIDon't know of the exemption, sounds rather strange as it would seem the intent of the requirement would be to have an audit trail for small cash transactions more than hitting rehabbers or flippers or a guy with a lawn service who hires part time folks at times. :)

They also will be able to help you set up and maintain your accounting systems so that you can withstand an IRS audit should you be called in for one.

That way you have numbers and an expert opinion to back up your allocation in the unlikely event of an audit. 

Keeps people from taking your public advice and applying it incorrectly themselves.My experience has been that absolutely nothing - not even prior IRS audits - can keep investors from DIY-ing tax strategies incorrectly. :)

It is neither an audit risk nor you cheating IRS.

*Full disclosure not a CPA*Certain conditions need to be met but offsetting your capital gain from the disposition of your interest against passive activity losses seem plausible.Pg 79/154 from IRS Audit Guide:"Passive losses are generally deductible only to the extent of passive income. 

What caught my ear was audits and W2.So, my approach would be to have a back up if your CPA/Enrolled Agent or Attorney says it's okay to do as you've laid out.

Originally posted by "**********":There is two other alternatives besides FHA short refi,or short refi with your bank.A) An audit of your loans looking for any hint of bank boo boo's, a real shot in the dark, especially since your loans were not sub prime or Alt-A.B) Deed in Lieu - Could save your credit and NO deficiency if done correctly.Have a safe and productive trip.A) I am not sure if it was Sub-Prime.