That'll bust the gift theory pretty quickly...I think tax treatment will ultimately follow what the "partners" in this "informal partnership" agreed to...

For properties to qualify for 1031 Exchange treatment you must have had the intent to hold the property for rental income, appreciation, or use in a business.

What will you do if there is underage drinking, drugs or prostitutes involved with your rental? 

This is my first out of state investment and had very hard time finding contractors...had about 10 contractor come and bid...some forgot to even show for their appointments...two where literally on drugs...one gave a bid 2x higher then the rest and equal to the cost of the house.Any advise appreciated.

@Andrew Y.Your question is too broad.It heavily depends on what the cost is for and the facts and circumstances surrounding the cost.Rentals have more favorable treatment than fix and flip.  

There's no tourism, just lots of drugs, crime and unemployment.But there is a big petrochemical refinery here. 

Everywhere I have looked just talks about eliminating the capital gains on the original investment-but no discussion on the treatment of gains on the plan assets (which is what I really want to eliminate when I cash out, instead of having to roll into a 1031).Thoughts?

Most get only $750/month so if they don't have additional family support, they often supplement their income by renting to couch surfers, selling drugs, selling plasma, and when possible, doing odd jobs for cash.

SCRA Special Treatment for TenantsMany active duty members may also be able to terminate lease obligations and avoid eviction.Cancellation of Residential or Commercial LeasesTenants who enter active military service after signing a lease or rental agreement have a right to get out of their rental obligations.

Lesson learned, if I keep used dishwashers they are getting the vinegar treatment and will be stored in the basement.It is possible to get basic dishwashers very cheaply.