If she qualifies and materially participates, passive loss limitations won’t apply, allowing you to offset your income with cost segregation and bonus depreciation.This post does not create a CPA-Client relationship.

It as definitely a way to limit showing and determine if people meet those minimum requirements prior to a show.

If you are going to rent it and want to take advantage of the tax benefits be aware of material participation requirements and limitations on personal use. 

GLA is 1974sq ft, 3 bed 2 bath , blt in 1974, 0.33 acre lot, 85749 zip code just outside of Tucson, AZ city limits.  

Can I make an appealing master bathroom to capture emotional appeal of a buyer within the limited space?

That limit was recently bumped up to a $100M maximum.

That way I wouldn't be subject to long term capital gains tax and save a decent chunk of change.Also, my understanding of gifts, in this case money, is that there is a yearly limit to how much you can give someone without having to fill out form 709.

I have seen it too many times where an investor will buy an older property or even a new build, they net cashflow similar to you for a year ($100-$200 per month) and then a $5,000 repair or insurance/tax hike here hits them and it's a loss - they either get forced to sell or are majorly setback and unmotivated. 

I’ve been in a similar position where I wanted to scale but equity was a limiting factor.

The usable space of that room is already quite limited, so I would definitely remove it.