@Michael Noto, @Mathew Allen, @Ryan Luby, code requires the following:Must be at least 70 sq ft, minimum 7ft in each directionCeiling height of at least 7ftDirect access from a hallway or communal space (not from another bedroom)Second means of egress; either a door directly outside or a window at least 20" (H) x 24" (w)Proper lighting and ventilation; usually window(s) that is at least 8% of wall areaAt least 2 electrical outletsPermanent heat source that can maintain 68 degrees (space heaters don't count)Curiously, closets are not required by code, but a generally expected by tenants.

Then the condo association would also have to be on board.

However, on the personal portion of the property we would be limited in claiming a the percentage of mortgage interest equal to the ratio of the IRS limit divided by the average loan amount ($750,000/LOAN AMOUNT).Since we are splitting the rental amount off of the full mortgage interest would we be correct in assuming that we can claim all mortgage interest associated with the full 58.2% of the loan amount?

You are associating with the wrong people.  

I've seen no updates on what that regulation would look like.The other major factor is the HOA or condo association regulations, since many Northern Virginia communities full under one of those umbrellas.

I read around and some people are saying that most times a fee would be associated with rate re-negotiation / float down with probably a minimum of 0.25%. 

You will need to speak with the neighborhood association and L&I about the zoning change.

Another suggestion is for you to join a REI group and/or your State LL Association there you can network, get forms, leases and all the legal support to be a confident and an effective PM. 

I have a masters degree in city planning - I know how cities work, how citizens live / work / play within them, and how to use government to your advantage.

“This feels like groundhog day,” Florida Association of Counties legislative director Eric Poole told the committee before Thursday’s vote.