I focus a lot on the income side of things, such as how much they are paid monthly, how long they have been at their current job and/or in the career field.

But you can still treat it as resulting in Ordinary Income even though it is reported on Schedule E, which lets you properly report in accordance with the tax results it seems you are shooting for under the tax return loophole.If your CPA is looking at switching it between schedules to get that tax result...it sounds like they don't understand the reporting position fully and/or they just don't know how to use their own software to address it.In summary, based on what you are describing for the situation, it should go on Schedule E, with what sounds like the resulting refund of $17k.

I am considering opening a business account at JP Morgan for all income + expenses, and simply use baselane for rent collection + higher APR on security deposits, etc.

There also is a lot more than just a promissory note and deed/mortgage to be drafted up so you might want to pick up a copy of my book Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending available on BiggerPockets.

While considering raising the rent to reflect the market rate and adding an additional $100 for utilities, I find it challenging as we have built a positive relationship with the current tenants.As for our Studio (STR), I would appreciate any suggestions on ways to optimize the income potential of this space.

Here are some tips to help you find and distinguish cash-flowing properties beyond the 1% rule:To evaluate a property's income potential, consider alternative metrics like the 1% rule, cap rate, cash-on-cash return, and gross rent multiplier (GRM).

You don’t need to make many changes other than filing your taxes differently and just budgeting differently due to the lack of one W2 income. 

OROption 2: Go big and do a cash-out refi/203K/HELOC to not only repair the foundation and waterproofing, but to add an extension to the home that would support a legal duplex for some income producing property.

These include higher occupancy rates compared to short-term rentals, reduced operational hassles, and the potential for a stable income that can sometimes rival or exceed that of long-term leases.

Additionally, holdover tenant is now subletting out the rooms making income and advertising it on 168.com.