Have around 100 MHP- About half with waste water treatment plants.

I'm curious on how best to structure this approach: Who owns what, who gets what, rental income & depreciation (all tax treatment).

I'm not that professional but I think a whole house filter would filter particulates like dirt but not chlorine. for chlorine you might need a reverse osmosis system for a specific drinking water tap to eliminate the taste as it's not practical or efficient to put an RO on the whole house supply. if skin issues from bathing are a problem you might need a softener. sometimes when kids have eczema doctors actually prescribe "bleach baths" where a small amount of chlorine bleach is added to the bath water. also many of the water treatment systems can be rented so maybe just rent it while they are there. regardless, proceed with data. water test, pediatrician diagnosis (if it's legal to ask for, no clue), and a system that is right for the application. sounds like the tenant is willing to help out which is awesome.

The amount of crime/drug addiction here is alarming.

@Christina Galdieri I agree with the comments on the window treatment replacement and the floor to be tiled (looks like a small bath of probably 50 or so square feet of floor tile, so shouldn't be too expensive to make it look semi-custom).

I think the correct treatment is for them to report the interest on their personal return if the IRS gets really nit-picky, but I don't forsee it being an issue since the amount is relatively small.

You could try ozone treatment first.

Lenders are still unfortunately tend to be very conservative on the rent-by-room (SRO) type arrangements still - its an area that really could use some better understanding out there but just be careful with expectations because a lot of the treatment of these properties (even if nothing like a old-fashioned "boarding house") can be tough

My husband and I owned and operated a Room and Board in CA where we housed 10 individuals who just got out of the jailing system or trying to get clean off of drugs.

Ask your accountant to read Regs 1.469 and CCA Memo 202151005.You can have Nonpassive Schedule Es under certain circumstances but it appears he is listing it as passive, therefore creating suspended losses.Here is a previous thread: https://www.biggerpockets.com/forums/530/topics/1056436-clearing-up-confusion-on-tax-treatment-of-short-term-rentals