Why are Muslims not allowed to have dogs for pets when the Prophet (pbuh) was said to have a puppy? Also, he was said to have patted a dog on the head and made salah (prayed) near a dog. Also, my wife and I have a dog, and we had the dog before we became Muslim. What should we do?

It is not true that the Prophet had a puppy or that it has been recorded that he petted a dog as far as I know. On the contrary, when the Prophet found that his grandson Al-Hasan had brought a puppy into the Prophet’s house, the Prophet refused to enter the house until the puppy had been removed. Ibn 'Abbas (may Allah be pleased with both him and his father) reported: “Allah's Messenger (peace be upon him) said: ‘Angels do not enter a house in which there is a dog or a picture.’” [Reported in Sahih Muslim] Also, the Prophet said: "Whoever keeps a dog as a pet, except for the purpose of guarding cattle or hunting, will lose a qiraat (a huge portion of the reward from his good deeds) daily." [Reported in Sahih al-Bukhari and Sahih Muslim] So, my advice to you, brother, is that, if you are keeping this dog to guard the house, you should actually keep it outside the house (in the backyard, for example). Otherwise, you should give it up. (And note also that it is not permissible to sell dogs.)