Should money be invested and pay debts off as scheduled or should they be paid off.If you end up with a taxable estate where is the money to pay the taxes due.Do you have a business partner, do each of you carry insurance to buy the interests of partners, you might end up with a partner who hasn't got a clue if you can't buy them out.Do you need a trust and how will it be funded?

Doing so would actually be a taxable event (distribution). 

I do understand deducting expenses, depreciation, and interest and the difference between taxable income and actual cash flow.

UBIT, or more strictly UDFI (unrelated debt financed income, which is a specific kind of unrelated business taxable income where real estate debt is involved), is a bummer, but it not the end of the world.

Whatever your partner received in excess of his capital contribution will be a taxable gain for your partner. 

@Corey Wright I vote (C) - borrow against the equity in the two properties to not incur a taxable event and keep the two rentals for an appreciation play since you are already into them.  

Though wholesaling is likely considered a service based business and subject to the phase outs after taxable income hits $157.5k and $315k (if married).Side question: what is a trade or business?

I checked in Fidelity transfer detials, it says clearly Total Non-Taxable Amount for the line item.

I do not have any taxable stocks to sell at a loss to offset the capital gains.

That interest will be taxable to you when you receive it but it will be an expense to the LLC.