They follow state laws, or in the case of a VA loan, the borrowers entitlement will be reduced by the amount of the loss against the loan.

You are correct, All of the standard Market companies I contacted would not write the coverage with an open loss.  

W-2 income is similar to Retirement income in that rental losses can offset it if the rental activity is considered active.

To minimize my loss, I want to make sure that section 8 continues to pay me while she is in the unit till I get her out. 

This creates two loan payments ($100,000 of equity and $300,000 on the new mortgage).Key NumbersHome Equity Loan Interest Rate: 6%Mortgage Interest Rate: 7%Rental Income: $3,000 per monthExpenses (management, taxes, insurance, maintenance): $800 per monthIncome and ExpensesMonthly Rental Income: $3,000Monthly Expenses: $800Monthly Mortgage Payment: $2,000ExplanationThe investor earns $3,000 in rent each month.They pay $2,000 on the investment property mortgage and $800 on other expenses.This leaves $200 profit each month or $2,400 per year.However, you have to pay $6,000 interest on the equity borrowed.This leaves you with an annual loss of $3,600.While the rental property generates positive monthly income, the interest cost of borrowing the initial $100,000 results in an overall annual loss.

I think you may have missed the fact that my current primary would rent for 3800 and the mortgage is currently 6125$ this means I if I turned it into a rental I’d be operating at a loss for a lot of years because that’s a huge gap so you can automatically say that I wouldn’t get any cash flow for probably the first 10 years minimum.

Which is a fancy way to say a landlord can eat a minor net loss for a few years if there is many many more years or following profitability.     

The Error by the Tax Appraiser may have caused you and economic loss. 

I just acquired it and would like to report this property on Schedule C to deduct the loss of first year operations and expenses against my other Sch C business(es) and my husband's W2.

My opinion is while not directly correlated, when banks start losing money and increase in defaults lending tightens and large losses typically will lead to more job losses.