And speaking of the IRS: would his attorney (or 3rd party administrator) provide me a 1098 at year end? 

@Justin Nagy - Sure, if you want to commit fraud and have the IRS on your back. 

The IRS has the ability to consider the extra value over $1 to be a gift and thus can bring your inheritance taxes into play. 

So, it's entirely possible to "lose" $10k each on 10 properties, because of writeoffs such as depreciation, interest payments, PM fees, etc.... and even with those "losses", you can get mortgages, because banks use different criteria than the IRS.

I want her to work more hours, but I also don't want the IRS to consider her an employee.

The IRS will view the transaction on proceeds delivered to each individual and their individual declaration of reinvestment under 1031 rules and regs.

Then of course, there is an accounting principle courtesy of the IRS called depreciation.

@John MorganI'm with @Basit Siddiqi: report full rent and deduct expenses.There're many reasons to do that, starting from the IRS audit risk.

And you must purchase at least as much as your net sale.Any amount you purchase less than what you sell and the difference is taking profit in the IRS's eyes. 

Lots of IRS Notices and Rev Rul, IRC codes.