Would he only be liable for the capital gain tax as there is no interest being earned?

I'm thinking we need an llc maybe tax as s-corp .

It looks like there are 2 places to enter the property tax:  a)  Form 1065 Line 14 and b) Form 8825 Line 11.  

If I did the bankaccount option wouldnt it be tax as income?

In the beginning 50-70k of equity were making me 7-10k a year, in the latter years 120k plus were making me about the same a year and when you pay it all off, now you have no mortgage to pay, so all the money after expenses is taxable as part of your income tax as far as I understand (I could be wrong), which in my case is already 34%. 

I need to figure out how to avoid as much tax as possible before I start throwing money at investments. :)

Unlike passive rental income, the income from an active trade or business is subject to self employment tax (a nasty 15% tax commonly referred to a "social security and medicare" by working folks).

Unlike passive rental income, the income from an active trade or business is subject to self employment tax (a nasty 15% tax commonly referred to a "social security and medicare" by working folks).

But I would rather pay as few tax as possible for as long as possible.  

I have read the Publication 515 and 519 of the IRS and it would seem that this kind of Interest are exempt from the Withholding Tax, as well as the Income Tax Return, as they are considered "Portfolio Interests" and therefore non taxable income.