Just to make things even more interesting, it was completely gutted down to the studs and came with a squatter that had to be forcefully removed by the police (via shattering a glass patio door).

Next project is adding a patio.

Limited passive loss cannnot offset you ordinary income.  

They do offer leases up to 24 months so that wouldn't be out of the ordinary for them.

Yes I didn't qualify for the partial...From what I'm reading the gains will increase your AGI  but it will not bump up your ordinary income into a higher tax bracket.

@Adam FrancoFlips are recorded at your regular income tax rate, subject to self-employment tax.You figure out your final cost basis (purchase, rehab, insurance, property taxes, financing, permit fees, commissions, utilities, etc.) and the difference between the sales price and the final cost basis is the profit made that will be taxed as ordinary income.You should speak with a CPA to help organize things and try to minimize the tax impact.

It has a nice little front yard and a nice patio area for the back house.

We put the furniture back each cleaning, they only move end tables and sofa and love seat, and occasionally the wicker stuff in the sunroom and on the patio. 

A business expense is defined by it's nature of being ordinary and necessary, not by how you hold the asset.

Pet rent is not a deposit so don't count it toward the cost of repairs.Scratches in the wood floor would probably be considered ordinary wear-and-tear unless it's excessive for the situation.