Okay, let's pretend they had separate accounts, one for business and one for personal. Would the correct way to do it be for them to pay every utility bill, property tax bill, etc. with two checks, one from the personal account and one from the business account, at the set %? That seems a little silly. And it still doesn't account for the depreciation.

To me, it makes sense for the couple to charge the business "rent" in the amount of the % of property tax, utilities, and depreciation, and then pay tax on the income. But I'll be the first to admit that tax laws don't necessarily make sense! (Don't get me started on MACRS.)

So, we're still left with the question: how SHOULD they do this?