.), how litigious is your state, your own loss history/ratio as an individual investor, the carrier's overall loss ratio in a certain state/area, the deductibles you've elected, etc. 

If the rent payment covers your mortgage and you have a good tenant, why would you get rid of them to take on the expense of unit turnover, because you will have to do one, and the 5% vacancy loss just to increase your rent $150 per month?

>>For purposes of taxes, consult with a CPA to confirm this would work for your situation, but you could have the LLC be treated as a "disregarded entity" and thus, even if you and your wife are members, any profits/losses would "disregard" the LLC and go directly on your personal returns. 

I am not a rookie investor, and probably have taken enough Losses since 2001 to make most of you quit. 

It's simply factual:  you violated the lease by smoking, stop it, remove the resulting odor and that a repeat action could result in eviction and loss of security deposit.  

So you have to weight risk to reward.. and sometimes we have to eat one that we bought it happens..

Does anyone have an attorney recommendation in Texas or other recommendations to remedy this loss?

Unfortunately, I see a growing trend of a lot of service members renting their homes at break even rates or at losses.

If I move to a partnership, what happens to my accumulated passive losses? 

I recognize there are other ways I could invest this cash (including another property) but I am being mindful of levering myself out too much in the current environment where job losses are more common in my industry (tech).