The interest portion of the mortgage payment is an expense for the LLC. The mortgage payment is recorded the same as if you had loaned the LLC cash and the LLC made the mortgage payment.
You need to add the asset "rental property" into the 1065 partnership return so it can be depreciated. When you add the asset, you will also add the loan. You have assigned both to the partnership, even though it is in your personal name. This is common since most lenders will not lend to a new partnership entity with no credit record. When you add the asset and loan to the partnership books, make sure it is a balanced entry. You may need an accountants help for that. Your balance sheet on the 1065 will have to be in balance.
However, you may not have to include your balance sheet on your 1065 if you meet these conditions. Then you don't need to make the balance sheet "balance" on your 1065. This is answer 6 on page 2 of your 1065:
6) Does the partnership satisfy all four of the following conditions?
a The partnership’s total receipts for the tax year were less than $250,000.
b The partnership’s total assets at the end of the tax year were less than $1 million.
c Schedules K-1 are filed with the return and furnished to the partners on or before the due date (including
extensions) for the partnership return.
d The partnership is not filing and is not required to file Schedule M-3
If “Yes,” the partnership is not required to complete Schedules L, M-1, and M-2; Item F on page 1 of Form 1065;
or Item L on Schedule K-1.
The mortgage payment is considered a capital contribution by you and your wife, as partners. This transaction just skips the cash in and out of the LLC, since you paid it directly. When you file your 1065 Partnership return, you include 50% of mortgage payment as a capital contribution by you and 50% as a capital contribution by your wife.
The entire mortgage payment is the capital contribution, the interest is the expense for the partnership and the principal part of the payment reduces the loan balance on the balance sheet of the partnership.
