I'm curious though in this case if the local zoning authority has given zoning approval and will issue building Permits to renovate the garage into a separate apartment ? 

You're now asking about the "Mom & Pop" $25k passive activity loss allowance for RRE with 'active participation' under IRC Sec 469.We were initially talking about the new 20% QBI deduction authorized under IRC Sec 199A (new for 2018-2025 under the Tax Cuts & Jobs Act).You may want to engage a tax CPA/EA for 2018 just to make sure you're doing things correctly. 

Code section 643(f) and the underlying regulations give the Treasury authority to treat multiple nongrantor trusts as a single trust if they have a the same primary grantor and beneficiary.

If it is licensed as a rental that will help you understand that plumbing, HVAC and electrical are at least functional and up to rental authority code.SFH don't really go off a CAP. 

Since a contractor is not required to be licensed in Texas, the is no Authority to handle disputes. 

I cannot give you a specific case study, but the legislation that is most relevant is H.R. 1598 from the 112th Congress.

I did not ever authorize them to put a water bill in my name.

What those authors and gurus are really trying to say is that you should be gathering contacts, building out your rolodex, so that you have people to call when you do get a deal. 

The water authority told me id have to change the zoning on the property in order to eliminate one of the water meters. 

This provides what is called "checkbook control", as the client now has signing authority on a bank account held in the name of the LLC.