-we rent it out most of the year , usually for 7 days or less
Does that mean you also use it personally other times during the year? If the number of days you use it personally (or family/friends or anyone staying for less that fair market rent), if that number of days is greater than 14 days, and also exceeds 10% of the fair rental days, then your deductions are limited to the amount of income, and the other rules about it being non passive because it's a short term rental no longer apply at all.
Before I try to answer the other questions, are we talking about an LLC that you are filing as a partnership on a partnership tax return (a 1065 return)? Or are you just filing a Schedule E on your personal tax return (and are the 2 members of the LLC spouses)?
