After reading through this thread I am of the opinion you and your friend now have a legal partnership.
I used the word "partner" only in the sense that we are now "partners" in this investment property.
.....which further supports my opinion that you now have a legal partnership in every sense of the word, any way you look at it. Now it's not like you learn this stuff through osmosis. But the fact is, you need to seek the services of a tax professional yesterday, if not sooner. Here's the scoop, and what I'm confident any tax pro will tell you.
You now have a legally established partnership.
Friend and I are in the process of refinancing and it is about to close
That statement changes my "opinion" to what I would interpret as an undeniable legal fact. Especially if both of you will be listed on the deed "AND" the mortgage.
Basically, (assuming the change, minus the refi) if this occurred in 2020 you need to file a "final" SCH E with your personal return.
Then you will need to complete an IRS Form 1065 Partnership Return for the newly established partnership. The property will then be transferred to the partnership return "as is".
The partnership will then issue each owner a K-1 which they will need in order to complete their personal 1040 tax return. This can be done with TurboTax, but it's very detail intensive and I highly recommend professional help for this, in the first year the partnership was established - which I understand to be in 2020.
Please get processional help. If you have no experience with this and screw it up attempting this on your own, rest assured that all the fines, penalties and back taxes you will "BOTH" be assessed will make the cost of professional help seem like a pittance in comparison.
