Since your lot is already zoned RS3, you can (by right) build a new SFH or 2-flat.

Galv plumbing, clay flats.

Excess depreciation could be suspended as a passive loss unless you qualify as a Real Estate Professional (REPS) or materially participate in a Short-Term Rental (STR)—which would allow you to use the additional depreciation to offset W-2 or business income.

I realize alot of investors have absolutely no asset protection ie LLCs for their properties and have been told by a couple of attorneys that im over thinking and perhaps paranoid of being sued, california as well as the entire US is known for excessive litigation.

If you own a 2-flat with an additional non-conforming garden unit (basement) being rented, and you're considering a cash-out refinance, how will the lender evaluate the rental income?

This means the buyer cannot write it off immediately but may recover the cost through depreciation over time.To maximize tax deferral, sellers should consider negotiating a price reduction instead of a repair credit to avoid potential taxable boot (excess cash retained).

At the same time, many hosts and investors jumped into STRs during this same time period which created an excess of supply in many travel destinations that wound up saturating those markets.

Otherwise the cost/fees for doing 15% will be excessive. 

A very bad portent of this is the 40% rise in GOLD the last 12 months on top of strong run in 2023, this is how things started in past cycle as well, with stocks flat for 20 years and volatile commodities. 

(check page 7 of this IRS Pub)Something that's non-passive and you materially participate means you can deduct those losses up to the excess business loss limit.