Our mother passed away in 2020 and she had a 2 unit rental property that transferred ownership to my sister and myself upon her passing.
Do we need to create a Partnership or LLC entity and file a Partnership/LLC return to generate K1s?
Or perhaps can we simply report 1/2 of the expenses/income on our respective Schedule E forms?
a partnership return is required. whether it's an LLC or not is a personal decision. since it was due 3/15/2021, it is now late. your interests may be best served by using a pro to prepare the first year's return. while some non-husband/wife "partnerships" split reporting directly on their returns, this is not proper. a husband/wife who are the only partners can split reporting the income on their personal return as long as the partnership is not a state law entity, ie an LLC.
I'm of the opinion that you can report your share on your respective Schedule E. Using a partnership is optional.
I'm in a similar situation, and we each report 50% on our Schedule E.
Some hastily obtained references: