I actually enjoy the sect 8 arrangement because the tenant is being threatened with loss of their voucher by not paying their portion.

The $25K "cap" (special allowance, really) is for passive losses, not depreciation. 

Bloomberg.com asked real estate website Zillow.com to help us figure out which U.S. markets have been the riskiest over the last 35 years.Our measure of risk: Assuming buyers held on to their homes for five years before selling, what was their chance of suffering a loss?

Are you stuck with major losses because you have to pay closing costs and carrying costs? 

If he want's to cut off the hand that feeds him it's his loss. 

so the only way to mitigate my losses from cap gains is to live there for one year and one day?

If you buy a property, with title insurance, that insurance will not cover you for a supposed loss because you didn't know what property you were buying.

Most people who start tracking probates (or diets or try to quit smoking) will give up way too soon.

Here's a hint, your CPA is going to tell you to write everything off and take a big loss, that's fine as along as you don't plan on buying any more property's, or make a lot of money. 

I have a call in to my insurance company about whether they would cover a fire loss in the event of a legal or illegal growing operation.