(Listen to enough of the BP podcasts and the smell of cat pee starts to sound like a good thing) Adjusting the ARV is a bit tricky since this is deal 1 and I wasn't sure.Thanks for the tip of running the deal again to see if it's truly ripe.  

When you structure a contract that passes enough of the risks and benefits of ownership to the other party the IRS can deem that a sale happened even if there was not actual change of title. 

Will the capital improvement benefit the entire building as a whole? 

Then if your MAGI (Modified Adjusted Gross Income) is greater than $150,000, then you can't deduct the SchE losses against that income.

You could always ask your neighbor to sell you the 33sf and then do a lot line adjustment then all you will need need is a survey and meet any of basic requirements.

I see you are from Illinois and here is a link to their state website explaining that the property tax exemption is only on the primary residence:https://www2.illinois.gov/veterans/benefits/pages/real-estate.aspxHere is a breakdown of these laws by state:https://www.hadit.com/disabled-veterans-property-tax-exemptions-state/Thank you sincerely for your service to our country!

There are no tax benefits for an LLC that are not there for a sole proprietorship as they are both "pass-through entities."

Feel free to make a copy and make changes to any of the adjustments as you please. 

In the midst of the teacher walk-out, which we supported, we also received a pretty large tax benefit from selling a couple of properties and not having to pay Oklahoma capital gains.

Your basis in the property is lesser of the below in the year it was converted to rental: 1) your adjusted basis - ( purchase price adjusted for other various stuff -- such as settlement cost, improvements to your house and so forth. 2) FMV ( which is not a tax assessment) if you have used the wrong basis, in 2016,  to keep things simpler and practical, I would catch up the depreciation to make it correct this year. your depreciation basis is determined on the year it was converted to rental, and generally, does not evaluate each year.If any improvements are made to a property, they will be depreciated as a separate asset.