I would lobby for expensing this if it was my return.Charles...I thought the concept of depreciation was to allocate expenses to the year they produce income and not to "exhaust" the use of the property.

Included 20% capex allocation in my calcs (which might be low. 

Really depends on your budget, motivation, and time you can allocate to it. 

Via the IRS:Cost segregation studies are most commonly prepared for the allocation or reallocation of building costs to tangible personal property.

My household income allows me to save $20k post tax dollars a year and ~40k pretax dollars per year for allocation to real estate rather than stocks/bonds & speculative instruments. 

Since 1/6 of the property is her residence then you could probably allocate $250,000 of the sale to her primary residence.  

As a partnership, the income and expenses will be allocated to each partner in accordance with their share (or as given in the partnership agreement).

I would within the timeline of your states guidelines send a letter accounting for how the deposit was allocated.

The problem when you just borrow money not allocated to a specific property is; how do you decide when to pay it off?

@Chris KovarikWelcome to BP.We usually allocate $350 a unit per year for cap ex (reserves).