Your husband does not qualify for REPS anyway, but you do not need REPS to benefit from the so-called STR loophole.More importantly, STRs typically create large tax losses in the first year only.Most importantly, taxes are never a good reason to choose a poorly performing investment, IMHO.Read this post: https://www.biggerpockets.com/forums/51/topics/1122635-the-s... 

Also, do I really get tax benefits for hiring my family member.

I've also been investing in the Indianapolis area, more for cash flow and tax benefits (may be able to get REPS status by logging my hours but that's another topic).

The penalty from section 8 is usually cancellation of benefits.  

STR arbitrage has lots of benefits and result in lower vacancy rates.  

They benefit by having a year lease with guaranteed income.

Our strategy was to renovate, rent it out as a STR (short term rental), and manage it ourselves to qualify for the STR tax benefits in the year 2022.

This will give you several benefits.

If you throw everything into one "capital improvements" bucket, you lose these benefits.3.

I get both benefits.