Because you have to keep the same taxpayer as owner from the relinquished property to the replacement property I'd worry that the legal protection you'd want for a development TIC won't be there.DSTs have high fee but probably are the best path forward for someone who wants to be fully passive and avoid legal risk.

Why does the IRS consider it ordinary income?

One example:  Taxpayer tried to use the hours from a STR as REP hours. 

However, this is a difficult qualification to meet, especially if you have a full-time job outside of real estate.Don’t worry if you aren’t able to qualify for REPS status, because there is another strategy that is referred to as a “loophole”, which is the STR strategy.Per Section 1.469-1T(e)(3)(ii)(A): there are six exceptions where your rental property income is not automatically considered to be “rental activity” and thus may unlock the door for being able to offset these losses against your active income.The average customer use is seven days or less.The average customer use is 30 days or less and significant personal services were provided (for example, daily housekeeping).Extraordinary personal services are provided, regardless of the duration of customer use.The rental is incidental to a non-rental activity.The property is available during defined business hours for non-exclusive use by various customers.The property is used in an activity conducted by an S Corporation, partnership or joint venture in which the taxpayer holds an interest.If your property qualifies by meeting one of the exceptions above, the next step is to demonstrate material participation in the rental activity.

A good amount of municipalities tax under either RITA or CCA to ease the burden on the taxpayer, but with many you have to file separately.

Sales taxes received go to a sales tax payable account and is not considered revenue.

And would this mean that my short term rental income becomes ordinary income?

If legal fees or eviction costs arise, they’re also deductible as ordinary and necessary expenses.Keep detailed records of every expense for accurate tax reporting!

Then the partnership can be on title as the owner of both current properties and then the partnership can be the consistent taxpayer for a clean 1031 exchange.

The 1245 property (think personal property and bonus depreciation) is recaptured at ordinary tax rates though… so the new property must have an equal amount or more 1245 property.