And that's assuming those two years of tax returns show enough income to qualify, so you don't want to get aggressive with deductions.3.

I deducted property-related expenses, such as mortgage interest, property taxes, and maintenance costs, from my taxable income.

I would write up and deduct from the deposit the broken doors, odor repairs, and carpets.

I've just seen too many unrepped buyers who think they're getting a discount by going directly to the listing agent, but they usually actually leave money on the table or screw up in one way or another without even realizing it (negotiating poorly/ not negotiating at all when they should, paying fees the seller typically pays, missing deadlines, misinterpreting inspection reports, not getting a sewer scope or radon or other things like a meth test or structural report or consulting a lawyer when appropriate, selecting most recent mill levy instead of prorated taxes for last calendar year when taxes went up 30% since last year are just a few examples I've seen personally).

This doesn't mean you get to keep his deposit however you can deduct money from the deposit for time the property was held. 

I would like to purchase short term rentals and be able to qualify as a real estate professional and deduct against by active income taxes.

It you think you can re-rent it in three months, then let her pay 4 or 5 months rent to buy out of it, with part of that being a credit for the security deposit money, assuming there are no damage deductions. 

My deductible is high, around $4,200.I'm confused about whether I should try to keep the costs under budget and avoid using my insurance.

Hey @Levi Chuculate, Taking ownership draws from a fund have less to do with taxes (unless you would like to discuss the tax implications of receiving that income) and more to do with your operating agreement and bylaws.

But if I put 0 for the state tax, my follow up question is how should I report this passive loss to NC which may be used to deduct future passive income.If you know any detail tax instruction for NC state that can help with case that would be also very helpful!