I realize this is somewhat complicated but I believe I should not be taxable on 50% portion of the lower unit I was transferring my interest to my co-business partner because I did neither gain nor lost anything by the exchange.

-With rental income, there are no "deductions". revenue-expenses= taxable income. this figure after expenses is what you will be taxed on. whatever profit you make, you will have to pay additional taxes on this on top of your normal income.

They were fully satisfied outside of the closing and the seller never requested/mentioned any sort of reimbursement for them.I guess what it comes down to "is the money we received at closing taxable income - even though its technically denoted for use toward property taxes".  

It says Bonds are designated "X" if taxable.If you look at the second column titled "Other State's Bonds", you will see that every state with an income tax, has an "X" which means that the income from out of state bonds is taxable.

LLC's are not taxable entities, the income passes straight through to you anyway, so it doesn't matter if you've got $10k passing through 5 different ones or $50k passing through one.

You can potentially utilize the loss to lower your overall taxable income and pay less taxes.The question is are you capable of reporting the losses?

Your total net income from properties sold in a given year is your taxable income which is typically taxed at your ordinary tax rate.  

Your taxable gain will be offset by whatever major improvements you did on the house.

So, even though selling is a taxable event, holding is also a taxable event.

Thanks Wayne, so if you did not put 90% of net proceeds into the new property, they consider that 10% a gain and it becomes taxable ?