It's the same deduction as paying any other expense.  

This is where you report negative income amounts, including NOLs.Calculate the NOL Deduction: The NOL deduction allows you to carry the loss forward to future tax years to offset taxable income.

This could include reporting expenses, depreciation, and other relevant information.Filing a tax return allows you to take advantage of any available deductions or credits that could offset other income or reduce your tax liability in future years.

3- Can I use this strategy and deduct all business expenses if I finance the property with a secondary home loan, or should I only get an investment loan?

@Amit ShuklaCreating an LLC does not give you any extra deductions.

Can I claim the deduction of $80,000 * 0.60 = $42,000 against my w2 income in the first year? 

I know this would likely be a touch lower since I'd be deducting any renovations or selling expenses, but just left this for simplicity.4) Added together my after tax sales proceeds and cash flow to arrive at a 10 year number of $1,255,274.Considerations:I found it coincidental that both numbers were within $1,000 of each other.

In CA there is a tax deduction.

You do need to have everything that is charged for itemized and  send that letter showing deductions within the time frame required by your state.

For newly constructed, purchased or renovated properties and also retroactive generally over the last 10 years, building components are properly classified into individual units of property and accurate recovery periods for computing depreciation deductions.