Great answer. I have some questions about some of things you've said:
1. How should I report the tools to the IRS? As an expense or a depreciable item?
You won't report them at all. Unless you are "in the business" of renovating properties and report that business income on SCH C (at least), your tools are exactly that.... *YOUR* *TOOLS*.
**This is where I'm confused. I am in the business of renovating properties. They also happen to be my properties.**
2. I have no other source of income other than the rental income from these rental properties.
I misspoke. I make about 14K from interest and dividends.
