Well, even if your CPA was correct, this had an opportunity to convert the ordinary self-employment income to capital gain. 

As for closing statement, not out of the ordinary for a PM to ask for that or a deed etc to prove you are the owner.  

With large 401k contributions and the ~$25k rental loss, my ordinary income will be about $21k and with the $10k in gains, total income should be $31k.

It only offsets other capital gains and not ordinary/rental income.

I strive to change passive income into ordinary earned income as little as possible.

Rental income is just that and will flow through onto your return as such.Are you doing other property management or earning other ordinary (not rental) income through the business?

It is considered earned or ordinary income.

While in the ceiling all of a sudden completely out of the ordinary the owner, his wife, and three Chinese Buisness that were obviously in charge with a following of a translater, a lawyer, and some other very well dressed individuals.

These are typically not ordinary, honest citizens that just happened to fall on hard times and they may decide to make everyone's life miserable on the way out the door.Bottom line: proceed with great caution.

@Ross Y.I am not a CPA but I had 2 different CPAs tell me that if one member of the family is considered a RE professional and that spouse owns, for example,50% of the business, the couple can use only 50% of the depreciation to offset other ordinary income.