Or is there any other way to acquire financing that would be a better option to do deductions and write offs. 

The PMI should be tax deductible (talk to your CPA, i am not giving tax advice), and your rate is hopefully in the low 3s.

My question is, are add-ons considered capital expenditures, making them deductible?  

Well now year 1 has an extra deduction of $800 ($2,000 total) causing tax to go down that year.

Hi there,Given the complexity of your situation—owning a rental property in Florida while residing in Illinois, house hacking with your daughter, and planning to claim tax breaks—it might be a good idea to consult with a Certified Public Accountant (CPA) or an Enrolled Agent (EA) who specializes in real estate taxation.While your current tax professional at HR Block has experience with multiple properties, a specialist can offer more in-depth knowledge on multi-state tax issues, rental income reporting, depreciation, and maximizing deductions specific to real estate investments.

I’m thinking this could help us with tax deductions, especially if we operate at a loss.Does anyone have experience with a situation like this?

It’s not absolutely necessary to hire a CPA with just two rental properties, but it can be really helpful, especially when you’re new to the tax benefits and deductions available.

You can still deduct expenses and claim depreciation without the LLC.

So, don't expect to be able to do a cost seg study on the property and take a big bonus depreciation deduction, unless the new property has significantly higher value than the exchanged property.  

McElhannon: Wouldn't all the other 17 years of expenses (taxes, maintenance, fees, etc)  also be deducted from the price and not just depreciation?