Turning Personally Owned Second Home into Business

[Allison Morris]

I personally own a home with the mortgage in mine and my husband's names, financed as a second home. The plan is to rent it out as short term vacation rental and have it pay for itself and generate income. Our bank said in order for this house to be classified as a second home, we have to intend to personally occupy (not list available for rent) the house a minimum of 14 days or 10% the amount of dates that it's rented. Now, we want to run the rental portion as a business, but we understand that with the house in our names, there's not a great way to protect our assets without quitclaiming the deed to an LLC, which we cannot do because of the due on sale clause in our mortgage.

At some point, we intend to refinance with a different bank who will let us transfer the title to an LLC

However, in the meantime, how should we set up the rental business for the best tax advantages until we can refinance with a different bank who will let us transfer the title to an LLC?