One tenant is in a conservatorship, another is section 8, I assume that is pretty straightforward to convert to us as a new owner? 

We lived there for 2 years and just recently moved and are converting it to a STR.Where are you wanting to retire to?

I agree that you can't generally convert passive losses into active losses nor can you turn active income into passive income, but I don't know why you can't pay a related a management fee that would be active income. 

You sink in about 2 inches when standing in it. 

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No, you can convert it in a future tax year but not the same year.

In terms of potential numbers I think I could convert the garage to an ADU and rent it for $2k and could rent the house for $4k especially if I added a bedroom  And then if I did those things it would also be worth about $1m so I’d gain equity, but I love the place so much I’d probably keep it forever.

You own the property, but the property owns the equity,...until you convert it to cash.The property is actually losing money as it gains equity. 

I've had 2 issues with tenants not paying rent resulting in them leaving and yes they left a mess, but we cleaned it up, got it re-rented (for a lot more money as there are rent caps in place in that area) and moved on.My first rental was accidental-I bought it to live in and moved and converted it into a rental. 

Get the owner out and convert the basement back just enough so its not a additional unit.