once those utilities go bad, your not going to be able to sustain the capital expenditure to replace each of the well's or the waste Water treatment system. 

Cash flow doesn't include non-cash transactions such as depreciation and amortization.Using $15k as a downpayment on a new property wouldn't be an expense for tax purposes.Your closing statement could be scrubbed for more favorable tax treatments (than 27.5/39 year depreciation), but the bulk will be capitalized.As Ashish mentioned, there are strategies to reduce taxable income, but what you're proposing won't.

Once damages are calculated, that ultimately becomes a number that's negotiated down.I've had contractors fired due to drug abuse (meth), contractors that ghosted after getting paid, contractors triple moonlighting and working themselves into hospitalized exhaustion, and more.Lawsuits have negative ROI, no matter how wronged you are.

If cash and capital gains are mixed then it gives rise to a pro rata treatment for tax benefits.For example if an investor invested $500k capital gains and $500k cash into a QOZ fund (and received stock) only 50% of the appreciation on the stock after 10 years would be tax free as only 50% of the initial investment was capital gains.The form to self-certify as an OZ fund has yet to be released by the IRS.If you have already invested cash into a QOZ for the tax benefits I would highly recommend you speak with a specialized real estate CPA who is well versed in QOZ's.

Drugs, guns, violence and unfortunately sex offenders. 

Not eligible for the new 20% deduction.The trick is determining whether the second part of your deal qualifies for the investor treatment.

is it a drug neighborhood,?

There are suspected for taking drugs, partying in night and stealing stuff including electricity from neighbor, apparently electric department has disconnected their electricity for some reason.

I rent a home in Van Nuys and saw two young homeless people doing hard drugs in the back alley.

I will list the numbers:current rent $1950/month (going to $2000 in about 6 months at end of 2 yr lease)My expenses: annual taxes $7950 ($662/month)                        Heloc balance $170k interest currently 5%                        land lord policy $1150/ year                        Self managed                        Maintenance : has averaged $300-400 per year.Reasons I am considering sale :   1) property is currently worth about $270k (making me feel roi is low).                                                           2) property has a pool which is a liability that I'm not completely comfortable with.                                                           3) property has a heloc balance against it of about $170k that I technically cannot deduct the interest                                                                       because it wasn't used for the property or any other rental.                                                           4) Tax treatment: my understanding is if you sell it having lived in it 2 out of last 5 years the capital gains                                                                 would be exempt.