The Spacious backyard offers mature fruit trees,workshop,fire pit,play set and large covered patio for shady afternoons.

I understand there is a 5 year carry over on this so if i realize any gains those gains will be taxed at ordinary rates as opposed to preferred rate. 

If they are generally living clean, I would send an exterminator one time and tell the tenants they are responsible for mice control from this point forward.Seriously consider adding a clause to your lease that says tenants are responsible for ordinary pest control (mice, sugar ants, flys, etc.)

Your total net income from properties sold in a given year is your taxable income which is typically taxed at your ordinary tax rate.#1 Project RevenueRevenue for flipping is easy to track because it is generally just one entry for the resale value of the property.#2 Project ExpensesExpenses get a bit more complicated because you will likely have a 100+ transactions for purchasing materials, paying contractors, & paying utility bills.For Expenses I track:Track Expenses by Vendor - Helpful for filing Vendor 1099s at the end of the yearTrack Expenses by Category (Purchase, Buying Costs, Holding Costs, Selling Costs, Financing Costs, Repairs (roofing, siding, painting, etc.) - Helpful for tracking actual expenses against my budget.

The landlord may withhold from the deposit only amounts reasonably necessary:(1) to remedy tenant defaults in the payment of rent or of other funds due to the landlord pursuant to an agreement; or(2) to restore the premises to their condition at the commencement of the tenancy, ordinary wear and tear excepted.

This way you can claim a loss against your ordinary income (loss). 

So, Y perhaps can't take the deduction since its a passive investment while X is paying taxes on the rent at their ordinary rate since they don't have sufficient deductions to apply.Anyway, there would be some serious details to be worked out.I hope you don't find this too morbid or out of line, but another strategy is to put Title in your mother's name. 

I don't keep a cash reserve at all now (33 units) because my ordinary income and rental income is enough to handle everything.

That is certainly a defensible action, not out of the ordinary. 

Even if I were able to carry losses forward, it can only be used to offset rental income, not ordinary income.