Your questions can't be answered cut and dry as posted, because more information is needed. Your questions just raise more questions in an effort to provide you useful responses. First things is, in what tax year was the property purchased/acquired?
1.) Can this property be considered an investment property for me and a primary residence for the other co-owner?
It depends. It may be considered a 2nd home. Do you have a rental agreement/contract where those who live there are obligated to pay you for your 50% of the property? Such a document may not be necessary. But if "called on the carpet" by the IRS or state taxing authorities, the general rule of thumb is, if it's not in writing, then it did not occur.
1a.) If it can be considered an investment property for me, can I write off depreciation as an expense on my tax return?
Have you been reporting your rental income every year on SCH E since your acquisition of your 50%? You most certainly can treat your 50% as being rented to the occupants.
1b.) If not, is it because the other co-owner is paying for property tax and maintenance?
That has nothing to do with it. You only claim those expenses that meet two basic requirements.
a) You are obligated to pay them.
b) You actually pay them.
But overall, half of the property taxes and half the mortgage payment (half the entire mortgage payment, not just half the interest) would be treated as rental income to you.
1c.) Would that change if I paid for part of or all of property tax and maintenance? (Or perhaps, regardless of who's paying for what, it can't be both an investment property and a primary?)
If you're treating your 50% as rental property, and you claim half of all the expenses (property tax, mortgage payment, property insurance) as income, then you "are" paying half of all those expenses.
2.) Say we go to sell this house in 5 years for a net profit of $500,000. Can the co-owners (married filing jointly) get the full $500,000 exemption if they've lived there the whole time?
If the half they own was their primary residence for at least two of the last 5 years they owned it, then yes.
You will be taxed on your share of the gain on your rental portion that you own 100%, and you will also pay tax on all the depreciation taken, since you are required to recapture all depreciation and pay taxes on it in the year you sell the property.
3.) Basically, what can I do to maximize my tax benefits and what can my co-owners do to maximize their tax benefits in this situation?
Both of you should talk with an estate planner in your local jurisdiction. A lot of things can come into play that makes this public user-to-user forum the last place you want to be seeking financial advice. For example, if you live in a community property state, things can (and will) get very messy very fast if the couple currently living in the house as their primary residence should separate and/or divorce. In such a case, you "WILL" be pulled into the middle of that mess, like it or not.
