So at $125k you're limited to $12,500 loss.

So I am completely at a loss on how to properly calculate the profit/ loss.  

Performing: the borrower is paying (typically for 12+ months)Nonperforming: the borrower hasn't paid for several months/years (you need to make them restart paying or foreclose)Reperforming: the note was non performing but as a result of loss mitigation efforts the borrower restarts payingPpr sells reperforming notes where the borrower has restarted making payments for like 3-4 months.

Generally, renting to anyone poses certain risks to the property owner in terms of maintenance and loss of timely payments.

How do I report either gain or loss on the disposition of these notes?

Nadav,The type of coverage you should be looking for is:Property -Building covered for "Replacement Cost"  (Actual Cash Value is the depreciated cost and that can lead to deduction for depreciation on even a partial loss)Special Form coverage (also know as "All Risk". 

As far as expenses, most of the routine ones (CapEX, Rent losses, Maintenance, taxes etc.) are either known or can be estimated for MF buildings.

Late reporting could allow the company to deny the loss. 

Since the cabinets are different colors, I dont think staining is an option unless its a really dark stain - since they will come out different shades - so I was going to paint them.

you can set yourself up for a bad loss.