You also lose the benefits of interest and tax deductions.

If no, you have to recalculate to make sure you are taking into account all future expenses and deducting it from your cash flowRegarding the ROI itself ... 300*12 = 3600With an investment of 55000, you are getting in the mid single digits cash on cash return ...You can do better.

I want to have the best tax strategy that can maximize our take home income by taking deductions from my salary along with rental income that may not be otherwise possible due to my high w2 income.

@Jef A.Hey Jef - Looking at the scenario you stated above, you may consider looking into your personal tax scenario (standard deduction vs itemized deduction) and any limitations on mortgage interest deductions on your primary home mortgage.

What do you think would be the appropiate deduction from her security deposit?  

If you're referring to the depreciation of the actual property then the pro is that it's tax deductible.

This will result in a larger depreciation deduction if the property is a rental.

You could just prorate the amount to her for the extra days and deduct from the new tenants who can move over the July 04th holidays. 

Once we qualify someone there's a good chance they may have to enter into our payment program that acts the same as a pretax deduction.

Keep in mind what you use the money for, if you use it for business the interest and loan costs are deductible, if you use it for personal you cannot deduct it, but it is not considered income. so if you say use $40K to fix up your personal home and $40K to buy another investment property  you need to split the amounts interest for tax purpose.