Whether you let him out of his lease might save you a tail whipping and a hospital visit.

So many are misinformed on what S8 does and how it does it.It's our tax dollars, so S8 is NOT looking to place low-income tenants (S8) in Class A properties.

And what are the future ramifications when withdrawing from the 401k since part of it should not be taxed?

You may not include income earned that is not on a tax return, an administrator or PHA may consider additional income in that household, a teenager may mow lawns or receive child support that may influence funds available to that household. 

It helps me grow my business allowing me to save time and costs.

After they pay rent and taxes they have about $1,500 or $388 a week for everything else.

I purchased a 1 BR 900sqft condo in 2021 with a depreciable tax basis of ~$275k and spent most of 2021 and first half of 2022 renovating the property (new appliances, flooring, painting, furniture, bathroom renovation, new kitchen countertops, new electric heaters, insulation, fireplace/pellet stove).

Being able to 1031 it into something larger would pay great dividends down the road, not to mention starting a fresh a depreciation cycle on your tax cycle. 

What is the tax treatment with respect to reporting, depreciaiton, etc.

The general investment profile of recent investors are second home or vacation home buyers, typically from out of State or area, and looking to take advantage of the diminishing benefit of the 'STR Loophole' of accelerated depreciation to offset high W-2 wage taxes.