Using it as rental which covers all costs associated with ownership.

She has a 5.25% loan, her PITI $1K per month, and she pays $25 per month for a homeowner's warranty that covers everything. 

For example, does it cover which areas are common areas versus private ones?

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.

Of course, with all things, the answers to all these matters will depend on the circumstances.California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts.

Wanted to know if it's possible to send a tenant to collections after a move out/ evictions for additional charges the security deposit didn't cover.

HUD typically covers their portion of the rent directly to you each month.4.

The property is rented at 850 a month with market rent average at 1300 and she covers all utilities and yardwork. 

Also, does the 1031 exchange cover just the $500K gain (appreciation since converting to rental) or the full $1.5MM gain?

I will be contacting my agent soon, but I wanted to toss this question to the forums to help me cover bases I might not think about.