It opened up my world.Now I am trying to reduce my 401k just to match what my company pay for (I have been maxing out my 401k and IRA each year) in order to save downpayment for a rental SFH.My wife loves our home so I can't do anything about it.The problem is my two cars.My bimmer has 5 year loan and if I sell it today, I lose all of my downpayment (10 grand) and leaves me negative 5 grand.

However, it does offer the ability to reduce my taxes as well as the possibility for appreciation given the area it's in.What do you guys think?

I want to maximize liability protection while reducing all the multiple filings.

Although she may feel entitled to "more" because she has owned her portion longer, her length of ownership doesn't somehow grow her interest in the property (and thereby reduce yours?!).  

She had hoped to file an Offer in Compromise to reduce the amount but since she has her house as an asset to cover the $40,000, it would seem that isn't a viable option from most attorneys she spoke to.

You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater.

If the taxpayer used the property as a rental or vacation home prior to using it as his or her personal residence, then the amount of gain that can be excluded will be reduced for that period of “non-qualified use” (see IRC Sec. 121(b)(5).)

Of course the lenders that want less will probably charge more.You could also look for partners, reducing the amount of initial capital you'd need, and once you've proven yourself you can probably find investors or silent partners that allow you to put nothing in. 

Here is an example, ripped of from one of Ben Leybovich's articles:https://www.biggerpockets.com/renewsblog/wp-content/uploads/2015/03/CapEx_Aricle_TABLE_1.pngAlso, another false statement I see on BP all the time is that because it is newly remodeled, an investor should be able to eliminate or reduce the CapEx expenses... this one is actively sold by the turnkey companies as is the % of rent CapEx falsehood, if they even talk about CapEx at all. 

There is no logic in putting more money in a rental than you absolutely have to as it only reduces your ROI and cash flow.