Looking for a reasonably priced designer to help with finishes and some PM (have a contractor but want another set of eyes). 

Hard to believe they go for over a million.Do you plan to make it legal, and getting a C/O.

Yes LLC is a "coverage" by definition of a legal entity which is not you, and it doesn't matter if the liability is triggered by an STR guest, an LTR tenant or a handyman working there etc.

Starting with legalities is important, having a good Real Estate contract is critical in my opinion.

I checked with my lender to ensure that a quit deed claim is something they're ok with.  It's being purchased under my name.  I've upped my umbrella insurance as well.I live in Washington State.  Investment 1 is in Al...

Normally you are only entitled to a deduction when you are legally required to make the payment.However, normally people would just list all the expenses on the partnership return and distribute the K-1 to the partners.

I'll also pursue legal action if they do not refund my money within the week.

You need to study your state landlord tenant regulations and ask for a opinion from a legal rep familiar with the codes.

To my knowledge I am not  aware of codes that will legally allow renting a in-law suite.

I personally would rather lose a few bookings here and there, than put myself in any possible legal trouble.