All of your living expenses are now deductible.  

But she wanted to know if she can deduct the principal amount that she paid to the person off of her taxes since she has to report the interest as income. 

You can deduct real estate losses against W-2 income provided your modified adjusted gross income (MAGI) is under $150,000.

You likely won't be able to take any deductions on your personal income, but real estate does have tax benefits.

It's 2 properties, single family homes, in the SF Bay Area.Sharing some details that might help inform the decision, let me know if anything else would be relevant.One property fully paid off, generates between $20-30k in profit after expenses (property taxes, hoa, insurance, etc).The other property is our current primary residency and would operate at a loss of about $10k/year.I plan to travel back to the US at least once a year, could that be a deductible expense with an LLC? 

Plus, I get to deduct legit business expenses and also depreciation on my taxes.

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.

Their deductible $100K, it's ridiculous amount for a townhome..

Both from  finance standpoint, deductions, rent for equity, etc.  

. $800.00)   (note this would be less than ordinary income paid otherwise, plus 50% of SE tax is a deduction.)• $4,200 contributed to solo traditional 401, then converted to Roth.