Business & farm

Neither Alabama or Delaware is a community property state.  That means that your 2-shareholder LLC must report and pay income taxes separately on form 1065 (unless you elect to be treated as a corporation and file form 1120).  The LLC tax return issues K-1 forms to the shareholders who enter those forms on their personal tax returns.

You can't treat the LLC as a disregarded entity and file using schedule C.

How that affects the proposed transaction, I can't tell, but it may affect the other answers.

One comment I do have is that the IRS uses a substance over form doctrine when auditing.  If a transaction is designed purely to look like one thing when it really does another, the IRS will tax you based on the other thing (the substance) and not the official form, especially when the form evades taxes.

I think the answer is, you're doing it wrong.

If you own the properties but don't collect income, then you have no way to write off expenses on schedule E.  And if the LLC collects the rent but doesn't own the property, then it has income but no expenses.  (The LLC could pay for repairs and other expenses but can't take depreciation.)

Why are you doing it this way?  Why not own the properties in your own name and collect the rent in your own name; or, sell the properties to the LLC and have the LLC collect the rent and pay the expenses?

Potentially the LLC could lease the property from your and then sub-lease it to the tenants, but I think you need more professional advice on that--remember that free advice on the internet is worth exactly what you pay for it.  Many people on this board are very knowledgeable, but don't expect us to stand with you if you are audited or if you discover that a particular transaction form leaves you in the lurch.