My plan is to due extensive rehab which should allow the property to appraise for higher so as to remove the PMI ASAP.In the closing paperwork, I received a standard document stating that when I reach 80% LTV based on current appraised value, I am eligible to have PMI removed.Come to find out later (after closing), that Freddie Mac will only remove PMI if appraised value reaches 65% LTV based on re-appraisal.From my reading, it seems that 65% is the overriding rule.

Per AZ law you need to take action to market the property at fair market value, re-rent the property and you can deduct the cost of re-renting from the tenant's deposits.

If I am understanding correctly if we sell it now profits would probably be considered ordinary income but we could directly deduct all the rehabbing. 

Important you consult  your accountant,  but it's my understanding you use the Heloc strictly for the investment & do not mix personal use with the investment use so the interest is tax deductible. 

This way everyone is on the same page so if you need to deduct from their security eventually you have a clear paper trail.

@Arthur WillieThe assignment fee adds to your cost basis and would be a deduction for tax purposes The assignment fee should be on your settlement statement just give to your accountant.

Having someone specialized look at the gives you the best shot at making sure every any any deduction is taken, and they can tell you if there's money back to be had.It could be a matter of errors, or communication issues, not getting the right documents. 

That's the difference in your example, you'd be the one offering consideration and your landlord receiving it.As it's a business lease, most likely the consideration you offered to change the lease would be a deduction for you.The landlord would report your consideration offered as taxable income and relet the floor space given up to make himself whole (or better than whole for his time and effort).

I lived in this house as my primary residence for 18 months which makes me eligible for a pro-rated homestead exemption however, that might not matter - i will explain.I have not worked at all this year and i expect to make less than $39,375 between now and the end of the calendar year, my long term capital gains tax rate is 0% for 2019 (see https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/).

So it is not eligible for a 1031.Capital gains is only available to properties you own for more than a year with the intent to hold.