While doing our taxes we realized that we won't ever surpass our standard deduction therefore won't really qualify to deduct mortgage interest on our personal residence.

Taxes are different in the US than Canada, but in Canada you can deduct interest from a mortgage on a rental property on your taxes. 

You can make tax-deductible contributions and manage the investments anyway you like: index funds, bonds, whatever.

Then when tax time comes, someone already has all of your info (closing statements, rent rolls, an understanding of the property and what you can report for deductions, etc) and the process is seamless.

If you came up with the price you want to pay for the property, halved it and deducted the holding costs plus potential partition lawsuit costs , and then owner financed 100% it would seem a reasonable bet to buy the 1/2 interest.

Find a contractor to do proper repairs and deduct the cost from their deposit.

I was hoping that if I put the property in an LLC, I could deduct all the housing expenses of that property against my personal income, reducing my personal tax liability.

. $7,500 (75%) of the net income is considered UDFI and is subject to UBIT.There is a deduction for the first $1,000 of income subject to UBIT.

I have also accumulated $3k worth of tools.I'm also figuring the power of depreciation is not as great as deducting in the current year as depreciation recapture will take place in the event the house is sold down the road. 

Then deduct all of the costs required to execute your business plan and get a tenant in there.