@Alex KholodenkoAlex, see my responses to your inquires below (obligatory disclaimer, I'm not an attorney):1) In my experience, you'll want to form an LLC in which both you and your partners are members to purchase the building2) An LLC is a pass through entity, so your respective shares of taxable income and depreciation would be taxed at the individual level.

Take just enough out in taxable boot to pay off the mortgage but do a 1031 on the remainder.  

Sue K stated I should increase the non-taxable income by 25%, which raises the income to  $3,6xx.

That seems to be more impactful than a gift card and also reduces my taxable income for gross rents. 

Mainly because you can write off your mortgage interest on taxable earnings?

@Wendy LinIf you are self-employed, one way to reduce your taxable income is by contributing to a solo 401k plan as the rules allow for as much as $53K in contributions for 2016 and $54K for 2017.

I believe the only disadvantage of this is that the amount of rent you pay to the LLC will be included in your taxable income once the income is allocated back to you. 

I thought about taxation issues, and it happens that the lease starts July 1st, so the first 6 months rent (plus 1 month deposit and final month rent) would be received in this tax year (for July-December), minimizing the over payment of rent in 2016, which will perhaps cause 1 month added taxable income in 2016.

We have a long-term goal of investing in real estate to set up our retirement.We were able to buy our house on the down market in 2010, we owe about 310k at 3.8% and could sell it for the low 800k.My dilemma is should I sell or rent my house in CaliforniaRenting will give us a $800 to $1000 cash flow, but California being a tenant state worries me.But on the other hand, selling will give us way more freedom and buying power, and it will accelerate our plan like crazy but I want to make sure I’m not missing something and making a mistake.The current plan is to sell the house here in California makes a 400/450k profit which should not be taxable as we are married and have lived in the house for the past 13 years.

When one is paying taxable income and you have newer ones that provide offsetting losses, it is a wonderful thing.