I assumed that we would end up basically owing nothing since depreciation, repairs and non-principle portion of our mortgage payment on the house greatly outstripped the amount paid toward principle.The tax preparer said we had to pay taxes on essentially the entire rental payment since our income was basically at 150k.

Hi,I have several children related tax question.

Norm,What you want to do is look online for your county tax assessor site.

this is due to historically outstanding rent growth, overall far better tenant than most other markets due to the housing shortage (San Diego ranks near bottom in nation in both delinquent rent and evictions), and property taxes being near fixed rate.  

Was looking for some better ideas for tax planning, and saw this one, but then wondering now how much money I need bring to table.I also have another house I could sell, and maybe 1031 exchange with like 300k equity in it, so not sure if that would help.

Forced appreciation, appreciation, tax savings, principal paydown and (the most valuable in my opinion) experience. 

Assuming he/she does not sell the property at the end of 10 years, at that point will taxes be owed on the property's appraised value?

That way increases in costs of insurance, property taxes, etc are passed onto the tenant. 

(yes, I will check with my tax professional also)

However I feel like we are missing out on tax deductions for the business, since those transactions are not being made from the business’s account.