You can deduct that from their security deposit, send to collections or sue them. 

Insurance would cover it, I would pay the deductible, and no assets would be lost.If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy.

I am trying to find the most relevant information for our strategy to ensure we get the best joint tax deduction options against MY W2 income.Is the following strategy correct?

The real estate appreciation, you can reduce your taxable income, and the interest on your mortgage is usually deductible, which is a nice bonus.

Depreciation recapture tax is the taxable amount on deductions you made for property depreciation.

It has also gotten much more expensive unless you are willing to do such high deductibles that it makes you feel uncomfortable.2) Remodels: Not only is cost of construction high, but homes are only getting older, which means the projects are getting more extensive.

For the landlord insurance, builder finance have given their quote of 1800/yr premium with 2500$ as deductible.

Have that individual report everything and then have an other deduction subtracting out the 50% to be reported on the other partners return. 

Determine if the payout (post-deductible) would even be worth it.

That being said, you have plenty of reserves where I think you can make a significant down payment and would be able to find something that cash flows.Plus its better to have that money in some kind of asset that grows in value, tax deductible, and bring in income; rather than it sitting in the bank.