Last question, you are hiring an architect and submitting plans to the city in a renovation like this correct?

Quote from @Felicia West: Thank you, Zachary for your very thorough explanation.Quote from @Zachary Jensen: Hey Felicia, At a high level you’re correct that when you and your husband’s income exceeds certain thresholds (over $150,000), passive losses from rental properties, including depreciation, can’t offset your W-2 income unless you or your spouse qualify as a Real Estate Professional (REPS).

It shouldn't be a recurring scenario (or it looks a little less "accidental") but in cases like this, your job is to simply have the correct intent, see what you have done to demonstrate that and build your case.

I have not heard of these folks but you may very well be correct maybe there is only a handful at a time. 

Local Economic Indicators: Monitor local employment rates, population growth, and housing inventory to time your deals correctly.

It wasn't the messiest thing I've seen, but still required clean up on my end which the clients weren't happy about at all.The third client is a self employed hair dresser and she compained of poor communication, inability to understand what they wanted form her and complete confusion over their payroll directions.For the price paid, I'd say the results were mediocre at best.

Those who commented are correct.

Hey Joe, Having a large number of rental properties and installment sales can certainly make your tax return voluminous, but as long as you're maintaining accurate records, filing everything correctly, and reporting all income, the size of your return itself is not necessarily an audit trigger.

Record lease data using software or spreadsheets, correcting any errors or discrepancies.   

If I understand you correctly, they can't even access their food or clothing, so this will be a big impact on them for a period of time.