An LLC is a flow through entity. This means the income flows through the LLC and is taxed at the individual level. If you split it up 50/50, then you each claim 50% of the income and expenses on your return. The LLC does not get taxed, but it does need to file an information return, form 1065, which is a partnership return. This will generate a K-1 for each of you with your share of income and expenses. You will then both enter the K-1 on your return which will flow to Schedule E. You will be taxed on the profit from the LLC.
You will need to use TurboTax Business (not home and business) to file the 1065.
When filing your individual taxes you will need to use TurboTax Premier to report the income from the K-1.
If you elected to be treated as an S-Corp, you will still need to use TurboTax Business, but instead of a 1065, you will file an 1120S. This will still generate a K-1 for both of you to enter on your own returns and you will still be taxed at your personal rate.
The way you will decrease your tax liability will be to take all the deductions you are allowed to take. This would be things such as repairs, renting expenses, utilities you pay for the tenants, etc. Also, be sure to take depreciation, as when you sell the house (if you do) you will be required to recapture the depreciation whether or not you take it.
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