In the more recent past, there is also usually a set-aside for taxes/insurance to stay up on the property if there is little or no income coming in.   

Expenses like this include things like property taxes, insurance, maintenance, administrative and office costs, payroll, marketing expenses, and property management fees. 

So, both my wife and I are full time W2 employees and are in the 24% tax bracket, and I came across the short-term rental loophole which sounds really amazing for taking write offs and using them to reduce your W2 taxable income, but also equally difficult to qualify for, unless you are within a short driving distance to your property.  

I was wondering if there are any potential tax deductions we could take as a passive investor. 

($5,000 coverage is way more than my deposit would be) Or, will they be impossible to work with and try to deny any claims?

LLC or not won’t make a tax difference. 

I am happy to speak to what I have seen as the most common set up from a tax perspective to give you a starting point for a deeper discussion, but ultimately you will want to speak with your CPA in conjunction with an asset protection attorney because this requires a deep dive into your specific situation.  

Nor would I buy here with the looming property tax threat against STR's. 

What I don't understand is how should I think about the tax benefits when holding rental property in an LLC.

I'm wondering if he would be willing to accept an offer that has long term tax benefit, I would give him his asking price, the only real problem I foresee in the repayment would be another big downturn.