If so, your basis will be your allocable share of the basis in year 2000.

For example if you occupy 50% the house (based on sq footage, #of bedrooms)than you can allocate 50% of the capital gains at the time of sale towards the section 121 exclusion - the remaining 50% will be treated as investment income and possibly subject to depreciation recapture -this is assuming you are apportioning your mortgage interest and property taxes on the proper schedules when you file your taxes ( your CPA should be able to help you with this)I would love to have CPA weigh in and maybe they can provide some insight as to why you might be getting that advice

I set up a C Corp to do it, and make sure the annual deductions are greater than PM fees allocated to the PM company, or I and  the C Corp will be subject to double taxation.

Realtors, loan officers, contractors are all pitching you a service and it is up to you to decide where to allocate your resources.

Other alternative is to be the 100% and treat the foreign investor as a silent partner and allocate 50% of after tax profits to them

According to their formula it is the purchase price (415,000) - Acquisition amount ( 335,000 ) = 80,000.Purchase closing costs 5000The max loan they will give me is 385,000 ( ARV 550,000 x .70 )50,000 of the 385,000 will be allocated out after closing for rehab costs.

Part of that list that I left out would definitely be to allocate x amount of money for unseen problems.

Take the size of the property, the CapEx items that will need to be replaced, what they cost to replace on that property, the lifetime of those items, and figure a $/mo amount on each and every item ... add them all up and you have yourself a sensible CapEx allocation.

I know there are a lot of details but I think it is important to know how much I need to allocate for such a deal if those two financing options were feasible.

Can you make it part of a damage (and cleaning) deposit and refund the portion that would not be allocated to cleaning?