In the market where I live (San Diego), appreciation has been strong and many predict it will continue to appreciate in the long term.However, with current interest rates (6% at best) and property tax (2%), the annual cost burden is 8%.Am I correct in saying that appreciation has to be above 8% annually (plus whatever my maintenance and vacancy costs are) for me to make any money in this scenario if the property is cash flow neutral?

The absolute best way to avoid taxes is not earn income.  

Family members are allowed tax-free gifts and that can come in many forms, just talk with your CPA and you will should be able to structure it without any tax burden.

Congratulations, you get to share your partners tax burden and pay the depreciation recapture at ordinary income rates. 

I would search the BP forums because your tax / legal related questions likely have already been asked.However, it doesn't hurt to still ask the forum what your questions are.

So the question becomes based on their individual and personal tax situation what is the estimated tax burden they'd save? 

5 Tax Mitigation Strategies Every Real Estate Investor Should KnowAs a real estate investor, every dollar you save in taxes is another dollar you can reinvest into growing your portfolio.

Then rent the bigger home out using a property manager, allowing her to possibly cash flow and maintain that asset and let it continue to grow in value.Encourage her to consult with a CPA or tax attorney to explore the best strategy tailored to her situation.

Consult your local CPA to calculate accurately and minimize your tax liability.

You have to complete Schedule E if you have rentals.You should check if the turbo tax premier version allows the filing of Schedule E.With that said, using a software like Turbo Tax will assume you to understand what is deductible.If you work with a tax professional, you are more likely to have an accurate return.