1) Continue treating as a rental where the depreciation schedule shows 50% business use
Can't do that with TurboTax. The program just flat out can not "correctly" account for the prior depreciation taken when it was 100% business use. While this option is an option, to correctly report it on your taxes you'll have to seek the services of a CPA.
2) Remove it from the rental section all together (consider it a second home)
That's what I would do.
If I remove it from the rental section, I am still uncertain if I need to report the payments that he makes for the mortgage as income. Going forward, I am wondering if it makes a difference if he were to pay the mortgage company directly versus going through my account or a shared account. Thanks again for all of your help.
Your father has a proven "vested interest" in the property. Therefor your father has all legal rights to claim all mortgage interest and property taxes he actually pays. It doesn't matter your dad's name isn't on the mortgage. The lender could care less who makes the payments - so long as they're made, and on time.
Your dad's vested interest in the property by both being on the deed, and the fact it's his primary residence gives him legal right to claim all mortgage interest and property taxes paid. So there's no income for you to claim/report on any tax return that way and you dad gets the tax breaks if any actually exists.
Remember, mortgage interest and property taxes are a SCH A itemized deduction. So until the itemized deductions exceed the standard deduction, they have absolutely no impact on one's tax liability.
