How do you normally handle reporting this?

Do you handle these types of partnerships and have sample agreements and entity structures?

I would pay to have an attorney handle all further communication.  

Someone asked me recently how I handle things if a tenant needs to break a lease.

How do you handle your mortgage payments? 

Most banks have mortgage minimums so it basically reduced the buyer-pool to cash-buyer-investors.

We had one tenant who had "her mom's dog" for a weekend to dog sit and we settled on charging her a reduced Fee ($100) plus $30/mo to even have the right to have her mom's dog there occasionally (which turned out to be 1-2 days/month)  We also had her sign an additional pet addendum which is very strong about what can and can't be done (and when we can enter the apartment or call animal control)Portion of our lease:If an unauthorized pet is found on the premises a fee of $500 is due immediately for having an non-authorized animal on the premise at the time of occurrence or at landlords discretion.

Currently, 85 tenants have figured out how to handle their rent each month without coming to my home.  

@Basit Siddiqi, thank you for your response.Just to be clear, out of the 40K recognized as profits to the LLC, I can deduct all closing costs thus reducing the tax burden to me when it moves as ordinary income to my return?

I think I got a handle on the depreciation and income level, but I still don't understand the passive vs active income part.