In this case, should I just accept further losses or keep the house?

The loan is a not a loss so therefore no write off. 

After this adjustment, the expenses are still greater than the rental income (it's producing a loss).What I'm unclear on is if I can apply the loss as a Passive Activity Loss deduction against my W-2 income (I'm under the MAGI limit).

Just wondering what the implications are of changing a single member LLC to a multiple member LLC as far as current depreciation, basis, carry forward losses and any other issues. 

First year was fine on property taxes, and we were cash flowing great.  2nd year the property taxes went up and not enough escrow was taken out by the lender, so now they're trying to catch that up and predict the current year, so mortgage essentially went up $1000 monthly, thus killing my $500/m cashflow and making me a $500/m loss.  

Just because you don't practice it doesn't mean you automatically subscribe to instant gratification, but it's likely if you subscribe to instant gratification the losses are compounded by not subscribing to delayed gratification. 

This type of financing will typically look very different and more like a traditional commercial real estate loan.That means a DSCR calculated based on a full NOI and expense load (so inclusive of vacancy loss estimates, credit loss estimates, repairs and maintenance, utilities, management fees and more – in addition to the property taxes and insurance expense that are the only expenses factored in on traditional residential style DSCR loan financing).Additionally, the DSCR minimums are generally going to be higher (typically up to 1.25x), the loan to value ratios lower (higher down payments) and underwrite more sophisticated (which makes sense considering the size and scope of the property).Many multifamily investors for properties of this size (such as more than 11 units) can syndicate capital and have more sophisticated financial and entity structures – its definitely a different world once you get up here in unit count.In Conclusion – when you are looking to invest in multifamily real estate and finance your investment – make sure you have the unit count in mind before you start shopping – the unit range can have a huge effect on your options.

I am not sure how I can take advantage  of the rental losses here.

According to passive activity loss rules, every business is obligated to adhere to specific criteria, especially when it comes to short-term rentals.

You're not "prohibited" from claiming bonus depreciation this year, but the resulting loss will probably be blocked and carried into the future years.