When you sell a property that has been depreciated, the IRS requires you to "recapture" the depreciation deductions, taxing that portion of the gain at ordinary income tax rates.

Just deduct security deposit and move on.

Deductibles- make sure your deductibles are as high as possible. 

Let's say that you were able to deduct $117k the first year.

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.

Also why are you deducting 50% for expenses? 

The IRS disaster assistance page and hotline are key resources for those seeking guidance.One significant benefit for those who have experienced property damage is the potential to claim a casualty loss deduction.

A professional study, though more expensive, often identifies more deductions and is better for IRS scrutiny.

If you're left with $107k across all 3 units after ALL expenses are deducted (some people don't include PITI when they discuss NOI) then I'd say it's darn good.

As explained above, income from the financed portion of the property in an IRA would be taxed as well, but you can deduct related expenses, including depreciation, to minimize this tax liability; that is why I recommend a discussion with a tax expert to understand what your numbers would look like.Hope this helps!