The positive side: Josh recognized he was a bottleneck and opened our communication to additional people (Mike and Elyse) who’ve been helpful in answering my questions after each update.

If this was true lease option, payments made before the exercise of an option under such an arrangement generally are recognized by the lessor as rental income and deducted by the lessee as rent expense. 

Property values go up because demand, inflation, and value-add increase the price of the house more than wear and tear decreases it, so the effect is masked and not recognized.

2) Would this work differently at the federal level vs. would the state tax authority likely recognize the MSA and award him the state deduction 3) What legal action could he reasonably take to contest my claiming the deduction, especially if it were to be granted by the IRS and/or the state tax authority?

An option to making this would would be selling on an installment sale- so that you are only recognizing part of the gain each year, over a few years.

Banks aren't lending because they haven't trained their people to recognize risk now that automated credit scoring (fico) dictates approval.

You mentioned, however, that you replaced the carpet so the 'loss' most likely will not be recognized for tax purposes.

If I for some chance leave the US, it will likely be for something fairly permanent - that is to say, I may be either open to giving up my permanent resident status, or effectively be forced to by not meeting any residency requirements (although I recognize that this seems to affect my ability to gain employment in the US more than it does the ability of the IRS to tax).Taking a read of Form 2555 www.irs.gov/pub/irs-pdf/f2555.pdf it seems that I can exclude up to $92,900 of foreign income from my US tax return.

Nevada is expensive to use, Texas is just as strong and cheaper.WA should recognize the Series LLC laws form the other state.

Presumably they recognized gain or loss on their partnership interests since they received cash.