One point she makes is that your ordinary CPA is not knowledgable enough to handle all the idiosyncrasies of REI issues - and errors can be very, very costly - so you need to be sure, as you know, that you have someone who really knows the tax code.Good luck!

Photos are taken before and after each occupancy however I do not take pictures during their residency unless for something critical or out of the ordinary.

We expect that even well-qualified (3xrent with good work history) tenant renting a $500 per month apartment will have occasionally have problems when faced with a large, out of the ordinary expense.

When factoring in the cost of non-pension benefits for state workers, such as health care for retired government employees, the debt facing California taxpayers rises further.

If I am interpreting what you are asking correctly, 2 different owners (and I assume taxpayers) are selling their respective properties and the combined funds will be used to purchase another property.  

For one, any interest income a taxpayer receives is indeed taxed as ordinary income. 

If the buyer is using it as a rental, they could take depreciation.3) Its ordinary income.  

I like my tenants to be ordinary.

Tenants are responsible for any maintenance that can be handled by an ordinary homeowner.

So this really looks to be just another "for show" law that lawmaker created using (and wasting) tax payer's money...