I had a friend here locally who had the bank call the loan due when they tried to transfer it to his name.

Read some material online (and we're going to higher CPA later) but seems that mortgage interest can be shown as an expense on Schedule E. 

@Lynette Gryniak you can also transfer the appraisal saving you time and money. 

Using an LLC, it seems there are two issues: (i) loan originator will not loan to an LLC, limiting financing options (particularly ones with good rates) and (ii) if one is willing to originate in their own name then transfer to an LLC (accepting the due on sale clause risk), the insurance is now in their person name with the property in their LLC, raising insurance issues. 

They reported their rental income and all expenses on Schedule E, and want to report the sale of the house on Schedule D and Form 8949.

I understand I cannot get the mortgage myself and then transfer it to the LLC neither... 

I’ve seen those type of transactions here in Cleveland come with penalties for selling quickly (e g <5yrs)....usually they want owner occupants in the property to stabilize the neighborhood. 

There are possible alternatives which would allow to you use these funds without paying taxes or penalties.First, you may wish to consider transferring the funds to a self-directed 401k or IRA which will allow you to invest in real estate without incurring taxes or penalties.

Most of them do not flip these properties because after paying down payment, closing costs, attorney fee, appraisal/inspection, holding costs, agent commissions, and transfer taxes, most of these deals don't make financial sense unless they hold onto the property for at least 5-10 years.That being said, most of them have done this to house-hack or use the BRRRR Strategy. 

We had 4,044 houses sold or transferred that were not listed on the MLS, 6.77% of all the closings.