I recently removed the wallpaper and baseboards from my downstairs half bath; I found, what looks like, a mess! The gap between the tile flooring and the wall is about 1" all the way around. In order to compensate for this gap, the previous owners installed baseboards with a significant gap from the wall. I also noticed the paper has been ripped off on the bottom 1.5-2" of the drywall. I'm not sure if this is normal or if I need to repair it before painting or installing new baseboards. If it does need repairing, how would I go about it? I would appreciate any advice.
I have attached a picture to better describe what it looks like.
It's fine, exactly as it should be.
The paper has not been ripped on the bottom, what you are seeing is the edge of any mudwork (white) against the natural light grey color of the drywal. The gap at the bottom is normal and necessary. Having a gap there keeps any water that may leak on the floor from mirgating under the baseboards and wicking up the drywall.
Again, there is nothing wrong here. Since the lower 3" or so of the drywall will get covered by the baseboard, there is no reason to finish it out, sand it down or do anything to make it look better. It's never going to be seen so there is no need. All you need to do is paint the walls (no need to paint that bottom 2-1/2"), reinstall the base and shoe and maybe some selective caulking around the base.
For general message board help, click the tab labeled "Tools," and choose "Help" from the dropdown menu.