I believe the hardest thing here is just to determine if the rental income goes onto the LLC form 1065 or if we complete via personal Schedule E
I think you're over-thinking this, because of the lack of clarity in this thread. (I don't claim innocence on that either.)
It goes on the 1065 regardless. If it's passive, then the 8825 will be completed. Otherwise, there will not be an 8825 completed.
Understand that when the K-1 is issued, if the income is passive then all the data from the K_1 will end up on page 2 of each owner's individual SCH E. If the income is not passive, then it will end up elsewhere on the owner's 1040.
In other words, you the individual 1040 tax filer will not enter anything "directly" into the personal 1040 program concerning the property, that is not on the K-1. But you issue/get a K-1 no matter what.
For taxes, the only "real" difference between a partnership and a multi-member LLC, is the spelling. The partnership issues each owner/partner a K-1, regardless of the type of income received by the partnership.
Bottom line is, A 1065 needs to be completed and K-1's issued. End of story.
