@Christian HatchHouse hacking makes your tax situation more complex.You purchased a property that is treated as both an investment property and a personal residence.

@Steve Totino, this is only slightly helpful where you are, but my mother-in-law, who spent her career in HR always says: "You teach others how to treat you"In this scenario, with you comment of multiple lease violations, you let those slip so now they think they can let others slip, like paying rent.  

So, the IRS treats any distributions in excess of your basis as a capital gain.Also, if you are living in one of the units owned by your company, then that is considered a taxable fringe benefit.And, if your S-Corp owns your rentals, then you cannot move them to another entity without paying capital gains tax including depreciation recapture. 

Why not treat it like a deal? 

I treat it like a loan, because it is one.

Most short term guests (Air bnb, VRBO) treat the property with respect and leave it in good condition.

The price of treated lumber for the porches went up 2x. 

It's only a violation if you are treating a protected class differently from others.Are you charging the same price for everyone based on the number of occupants?

Lancaster has treated me well!!

It must have been frightening, after treating your tenant nicely, doing your tenant a favor, their sublet "repaid you a favor" failing you this bad!!