Also, if you pay a CPA to prepare returns, figure an extra cost each year for another state return too.If you were to create an LLC, even if formed in the other state, you likely would be liable for the $800 minimum tax to California since you are managing the LLC from California and therefore "doing business" in California. 

To do this you will need four things: 1) a strong test ad in due diligence to prove that the demand is there 2) a dealer's license and an agreement to participate in the 21st Morgage's CASH program 3) the capital to make the necessary renovations to sell the home and 4) the knowledge and the ability to advertise, show and sell homes.There's no reason to fear the occasional loss of existing residents as long as you are prepared to replace them.

Treat people firmly but with empathy because they are ill-prepared and fearful.

If you want a more accurate answer I’d ask your cpa or tax preparer. 

I advise you that now you have learned from this lesson,  now you will know on how to prepare yourself for the next property.

Every year I discuss our return with our tax preparer on maximizing our return. 

But you have to be prepared that things will be tough all over and that will impact your plan.

@Jordan Graham If you go the Section 8 route, it's best to be prepared for all the red tape you'll need to deal with including the routine inspections.

Obviously have to prepare for the unknowns of the tenant tho 

Lastly be prepared to walk away, just like a leaking roof, poor tenants can kill a deal.