We calculate gross income as all dollars coming in except taxes.Our clients gross revenue is the room rate (top line) expenses minused out and then they receive their net income.Net profit (or loss) would be then when they subtract debt service, property tax, insurance, utilities, etc.

Move on, cut your losses, learn from it and invest in better markets next time.

( Not sure if that's the correct terminology.)Whatever loss I take in the first year against my wife's income, does doing this change my rental income from being passive to non passive income as well?

Welcome Scott,There's a ton of useful resources here on Bigger Pockets from calculators designed to show profit/loss to seasoned investors giving advice.

And always remember evictions can cost typically 2X-5X than CFK's - But your time is the most valuable LOSS in this all!  

What kind of loss are you talking? 

So the financial institutions get a better return  on there losses.

Operating Agreement: This document should outline each partner’s investment, share of profits/losses, decision-making authority, and exit strategy.

Additional question would be, can the SMLLC build the house at a discount (taking losses for the business)?

I know if I sell I would take a loss.