If I do not take on the properties, he will sell within the next 12 months to an unrelated party and I will never receive any portion of the proceeds.

Also consider a portion of your funds for a prepaid college plan if available as you might be able to beat inflation.

@Storm BucknorWe manage almost 100 S8 leases in the Metro Detroit market.While S8 may address tenant nonpayment issues, there are other challenges with tenant-portion of rent payments, tenant damages, dealing with S8 Annual Inspections and dealing with the nonresponsive caseworkers (underpaid & overworked).It also does NOT pay more than market rent.

Reposting my answer that I gave you on another forum:Short answer is that you (your LLC, to be more specific) will need to issue your relatives form 1099-MISC, and they - rather than you - will owe taxes on their portion of the profit.

So yes, you can generally depreciate only the rental-use portion for 2026, and a cost seg/bonus is still on the table, but it will be limited to the business/rental-use percentage for that year.You’re right to run it by your tax pro, but you are thinking about it the right way.

That portion of the project is valued at about 729k, so it added a strong income component and long-term upside to the deal. 

The rental portion will exceed the value of the rental townhouse. 

As a former, "Fix-and-Flipper" myself, the foundation part was the portion I was the most fuzzy on when I started out.

In other words, the IRS taxes the portion of your gain equal to depreciation taken (or allowable) to prevent “double-dipping.”To clarify:Expenses are not repaid at sale.

A cost seg is done on the whole property, then your CPA can allocate the bonus piece to the STR portion.