I am sure others will chime in on this post but personally is sounds fishy and it sounds like a possible tax avoidance scheme as well as a long way to create a paper trail that may really do nothing for you in the end ... but if you are going to do this you will also have to file gift tax returns each year since you will be over the max $14K per person limit.
Without the rental property on the Sch E you would still be able to deduct the mortgage interest on a second home & the property taxes on the Sch A. And you would be required to claim depreciation on the building that you will have to reclaim later when you sell the property. So in the long run will it really do anything for you overall?
