According to the IRS website: "The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence.

I don't think Jeff was describing taking depreciation against one's regular income.Regarding my second question, one builds up 'excess deprecition' which is depreciation in excess of what is taken against rental income, but that cannot be used to offset your ordinary income (because you earn >$150k, for example).

Now, the reasoning used to justify this (notice I did not use the word logic), is that the municipality runs by taxpayer dollars; so if municipal utilities go unpaid, that would place an extra burden on the taxpayers (i.e. higher taxes).

You cannot use this to avoid ordinary taxes. 1000s of people have already tried this and failed. 

I have seen a court case where a taxpayer was denied the deduction because a bookcase filled with pleasure reading books was in the room.Another glitch with rental property is whether it qualifies as a "business" since it is per se passive.

Because you file jointly the IRS sees you and your husband both as the tax payer for that property.  1031 does not allow you to sell and buy from yourself.2.

In Canada we cannot defer our tax payments like in the USA (which is what a 1041 exchange does).  

If I transfer the deed from LLC to personal name of a member 1) how do I handle the name change for the title insurance 2) is it a good idea to leave in personal name or transfer back to LLC once refinance is complete (which I'm being told I should do by year's end by my accountant for LLC tax purposes i.e. he said it won't trigger a tax payment either way). 

This creates a spread that can be extremely tax advantaged as the Losses carried over (Passive Activity Loss or PAL) can offset ordinary income such as wages. 

You will be charged the entire $2k, but the seller reimburses you for his part via a $1k credit at closing.You simply make a record of this $1k credit, and whenever you make the $2k tax payment, you apply the credit, and the remaining $1k is deductible.If, on the other hand, this adjustment was for something else - like a one-time charge for specific improvements to shared property - then it's a different story.