So a loss of about 55k We did a lease to own option so I could immediately take over expenses but keep their primary resident loan and interest rate.We agreed to a deal which would cover all their expenses at closing, their remaining loan balance, and $45,000.

Additionally, what do you look for in a property to increase the value i.e. what are typical items to target?

Just curious, is there any tax benefit to filing as a regular partnership and issuing k-1s to ourselves that show a loss?

The most important thing is to ensure your loan is covered in the event of a loss.  

Hi @Sam M.there are great answers on this post but I want to clarify something.In a real estate transaction most of the items are negotiable.

To qualify, you must meet material participation rules (100+ hours and more than anyone else) so that rental losses can offset active income.

Still, I think you'd find it difficult to find one that would be a good long-term investment unless you had another ~20-30 years to go, it's at least cash neutral, and you don't plan to hold it too long (to avoid too much investment loss and before you get to the point where it's unsellable because of too few years left); that's another way of saying that maybe it suits your cash needs in the near-term or is at least less of a pill to swallow than other options until you find something that's more of a sensible long-term play

Because we have been in growth mode acquiring properties with closing costs and rehab costs our business has been operating at a loss on paper each year not having to pay taxes for the business. 

The liability coverage is way better, the building coverage is often better, and commercial policies typically cover loss of business income as well, which a homeowners policy isn't going to help you with.California + wildfire area + STR is super tough. 

It gives you a ton of experience on: dealing with tenants, writing leases, maintenance items, etc - all from your backyard.