Letting a management company take over My question is how do you analyze a property in order to allocate for management fees.

@Todd Dexheimer, Actually in her case the 1031 and 121 primary residence would both be available on a sale according to the specific allocations. 

The management fee allocation of course depends on whether you will self-manage or hire someone. 

@Michael Dorr, Again, you've stumbled onto a brilliant application that actually will allow you to take advantage of tax free and tax deferred income and reduce debt at the same time if you wish - or to continue to leverage.If you hold long enough that you qualify for the 121 exemption (having lived in it for 2 out of the previous 5 years) then you would most certainly qualify for a 1031 exchange on the other portion.What you exchange and what is tax free is simply following the allocation your accountant sets up when putting the rental half into service. 

Here are few basics : % of ownershipsDispute resolution, etcDeath/Disability of a partnerProfit/Loss allocation and capital contributionI would recommend consulting a good attorney to get a list of things that you and your buddy need to discuss and have a framework to draft an operating agreement.

There is a world of difference between "getting a divorce" and having a final divorce judgment with specific allocation of obligations. 

My question is when I sell my home and claim the section 121 exemption will the new property have the carry over basis of my investment portion of the property and then at that point can I allocate the basis to the new layout for depreciating 3/4 of the property since I will be living in 1 unit?

@Chris Connery , What you are referring is the special allocation (rather than the allocation based on the partnership interest) of the partnership items.

You have no direct control over cash flow, allocations, contingency funding and modeling. 

Yes, mainly on commercial properties... since I am in dental business I was looking at a single building (about 5-6000 sqft) that I could allocate about 2-3000 sqft for medical/dental and the remaining portion for a retail tenant...