As your Modified Adjusted Gross Income (MAGI) increases, the amount of rental losses you can offset against your ordinary income phases out.

Section 469(c)(7) provides an exception that allows qualifying taxpayers to treat rental real estate activities as nonpassive, enabling them to deduct losses against other types of income.

Especially with the favorable tax incentives offered to buy and hold real estate vs the ordinary income tax you'll pay on private lending.A 1031 exchange would allow you to indefinitely defer all of the capital gains tax you would have to pay, and instead use it to purchase better performing property/properties.

You could just as easily use another income source, an ordinary checking account ("interest bearing" (* GUFFAW *!))

Could that bite our REP in year 5 when a big pile of ordinary earnings income is realized (if they don’t 1031 and defer it)?

Whether I find a new tenant or not, the departing tenant moves out after 30 days and is treated like an ordinary termination, which means I process their deposit like normal and they can earn a good landlord reference.2.

This is most of the depreciation you are taking year one.You can calculate your depreciation recapture by taking the sale price of the asset and subtracting the adjusted cost basis.The adjusted cost basis is what you paid for the asset plus any improvements you made along the way minus the depreciation you took along the way.The profit above this original cost is taxed as a capital gain, but the part linked to depreciation is taxed at a maximum rate of 25% under the unrecaptured gains of section 1250.To recap the tax rates are:- Sec. 1250 real property: 25%- Sec. 1245 property and 15 year 1250 property: Ordinary Tax RatesThere are ways to minimize depreciation recapture especially if you know how to work smart with your CPA.1) Asset Valuation at Time of Sale - Sellers can minimize recapture by reallocating the price of the assets on sale.

We want to travel and invest and are considering converting this short term rental to a long term rental to avoid sales tax, paying utilities and general management of the property. 

The tax payers of the world cannot pick up the tab for this waste of energy and so-called "innovation."

This is more tax efficient as the interest you collect would be subject to ordinary income (outside of an IRA, whereas in an IRA, there’d be no tax on this.