I’m an internal medicine physician and my wife is a nurse. 

Let's assume that you do want to venture into this unchartered territory and claim the STR loophole on your CA return.

I am wondering if I can claim it as a repair(counting against rental income) or if it must be claimed as an asset (with depreciation benefits)?  

Management & Leasing FeesManagement Fee: 10% of the monthly rent = $180/monthLeasing Fee (Tenant Placement): 60% of one month’s rent = $1,080 (one-time)Lease Renewal Fee: $250 per lease renewalUpfront & Annual FeesOnboarding Fee: $350 (one-time for setting up the property)Annual Administrative Fee: $45 per year (for statements and 1099s)Reserve Fund Requirement: $300 (held for maintenance and expenses)Maintenance & RepairsOrdinary Maintenance: Any repair costs exceeding $300 require owner approval.Emergency Repairs: Up to $300 without prior approval; HVAC, plumbing, and electrical repairs can go up to $500 without approval.Home Warranty Claim Handling: $40 per claim (if applicable).Multiple Quotes Request Fee: $100 per request if you require multiple vendor quotes.HVAC Filter Supply Fee: $195 per year per HVAC unit.Repairs & Improvements: 10% markup over vendor invoice cost.Additional FeesInterest on Unpaid Sums: 10% late fee with a $39 minimum per month.Paper Check Administrative Fee: $20 per check if not using direct deposit.Insurance Documentation Penalty: $40 per month if proof of insurance is not provided.Eviction Protection Program (Optional): $15/monthProperty Damage Protection Program (Optional): $25/monthTermination FeesEarly Termination Fee: Equal to the management fees for the remaining lease term.Vacant Property Termination Fee: $500 if no tenant is in place.Transfer to Another Manager: $500 file transfer fee. 

The sale was made through a quit claim deed.

Do we 1st do tax on the LLC and whatever we split 50 & 50 then each claims on their taxes ?

(zero claims or issues) We are looking at going with Obei Insurance, they focus specifically on investor real estate.

I've handed off my LTR to a separate PM and they want to be named on a general public insurance policy for the unit, but truth be told, I feel like I need a solid umbrella policy to cover the MTR and any claims against myself and husband as the owners of the property.

He would also be exposed to liabilities related to the property, such as lawsuits or property damage claims, which could affect his personal assets.

If the company would not write this policy this way, you may have an issue at claim time.