In my view, tax benefits are almost negligible ($10,000 max annual deductible), the tax on capital gain in $2.8 million would be around $850,000 (federal + state tax), total profit is -$1,350,000. 

The historic preservation tax credits are federal tax credits that encourage property developers and owners to rehabilitate and preserve historic and non-historic buildings used in trade or business or held for the production of income.

I guess it makes sense with all the government jobs there.

But CA has even friendlier tenant laws so they are out....I'd like to find a state where I can 1031 the rentals and have more cash flow and less expenses, as well as laws that aren't outright theft of my property by the government for years at a time to give free housing to people at my expense...

If you are interested in how to decrease your Federal Taxes and increase your cash-flow, I can help with no-cost consulting or studies specific to your property(ies) whether they are small or large and anywhere in the US or US Territories. 

However, if you are worried about being sued, you should use the best level of protection that you can afford.Your state laws: The laws governing asset protection vary from state to state.

Any tips on dealing with local governments to get this sort of thing done is much appreciated!

It depends on if the LLC is a single member LLC or a multi-member LLC.If it is a single-member LLC, it is considered a disregarded entity and reported directly on your individual return.If it is a multi-member LLC, by default, it is considered a partnership.If there is no income or expenses(rare to happen), then yes, no requirement atleast at the federal level. 

Likewise, Garn St Germain Act also comes into play here (that's a federal law).So, if you want to go down the rabbit hole some:1.

I know some people online say that the government covers repairs but I haven't seen that in any of the documentation and from what I've heard from fellow investors that is a lie.