It's complicated. As you describe it, your half is your principal residence. Your brother’s half is a 2nd home, to him., not a rental unit. He is not allowed any rental deductions, including depreciation.
When you sell, your capital gain is tax free (up to $250,000), under the home sale rules. His half of the gain is taxable to him, at long term capital gains rates.
In order for him to treat his half as a rental unit, you must pay him fair market rent. Just covering expenses, like mortgage interest, is not enough.
“We want to sell in a few years and have the gains offset with appropriate tax depreciation.” That’s not how a rental works. If he charges you fair market rent. He has to report the rent as income, each year. But, he gets to deduct expenses, like mortgage interest, and depreciation. This almost always results in a yearly tax loss that he can deduct against other income. However, when he sells the unit, he has to “recapture” (pay tax on) depreciation claimed (or allowed to be claimed). Depreciation recapture is taxed as ordinary income, not at capital gains rates.
You would not be allowed to deduct the portion of the mortgage interest and real estate tax that is designated as rent (in a fair market rental rate situation).
