The option costs you $5000, and the Option Agreement states that the owner of the Option agreement has the right to buy the property for $100k, within a 3 year period starting from the date the OA was signed.2 - You then sell that same Option Agreement to the end buyer for $10k...which then gives the end buyer ownership of the option Agreement, and the terms within that agreement.3 - The End Buyer now has ownership of the rights you had when you owned the Option Agreement.4 - You made $5k on the spread between what you paid for the option originally, and what you sold that agreement to the end buyer for.5 - The current owner/seller of the property has no idea what took place between you and the end buyer. 

Am I able to transfer sole ownership to her without complicating the 1031 or creating a tax penalty?

After taking ownership, we come to find out that the long-term tenants (who are generally lovely and take great care of property - low shovel etc) are actually the owners of the washer and dryer, though it is in common space.In the next year, we plan to put HVAC in the building with in-laundry units.

Simply stated, assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset)Liability: the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.A liability is defined by the following characteristics:-Any type of borrowing from persons or banks for improving a business or personal income that is payable during short or long time;-A duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services, or other transaction yielding an economic benefit, at a specified or determinable date, on occurrence of a specified event, or on demand;-A duty or responsibility that obligates the entity to another, leaving it little or no discretion to avoid settlement; and,-A transaction or event obligating the entity that has already occurred@Angelique Diaz I get where the Rich Dad idea comes from but I think we are forgetting that he wrote that book not as a REI text and more as a midst shifting primer for those that have little to no financial education.

I think it puts the starters in the position to earn good money by stepping into a first-hand-user experience that will illuminate the other two roles (wholesealing and rental ownership). 

If yes you have ownership of 50% in this property.

We did require a home warranty which we have already had to use (within 30 days of ownership).

If so, will we only be able to deduct the losses based on their percentage of interest in the LLC (i.e if the each have 45% ownership than we can only take 45% of the passive losses against each or our W2 incomes)? 

So, you will need to check the addresses against the county assessor website to verify property ownership.

@Denise Parent, Like everyone said, if you've lived in that for two out of the 5 years prior to sale you'll be able to get $250K of profit tax free (your husband won't meed the residency or ownership test).