Quote from @Chi Zhang: I've spoken to my CPA about this and he said it is extremely hard to meet the qualifications, and most investors have enough deductions that this deduction isn't worth trying to achieve.

Insurance would cover it, I would pay the deductible, and no assets would be lost.If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy.

Also, I am involved in rehab and management, so I am claiming my STR income under the Schedule C.Why aren't you guys claiming it under Schedule C and getting the deduction?

No option but to sell to stop hemorrhaging...After selling can I deduct losses (including passive losses) against other capital gains or ordinary income by 3K?

So if they have a $100,000 loss and there is 40% depreciation, the claim check will only be made out for $60,000 (less the deductible).   

And if not, where should they be deducted?

Deduct your late fees from the amount paid the following month.

I deduct the interest from the rental fee each year if the tenant decides to renew. 

Insurance and interest make it difficult for the traditional lenders to loan to us even though we can afford the payment, but to them since we deduct a lot of things on our taxes, we don't look to be cash flowing.

From that deduct the deposit (so that they know they won't be getting that back).