Here is my situation:I've owned and lived in my house as my primary residence for 3 years.Up until the last year, I have rented out spare bedrooms (space within the living area).I got married about a year ago and my spouse has now been living in the house as her primary residence for 12 months.Question 1: IRS publication 523 states in the section under Business or Rental Use of Home, "If the space you used for business of rental purposes was within the living area of the home, then your usage doesn't affect your gain or loss calculations.

It's great when a property cash-flows as a LTR as well as a STR, but it's a hard pill to shallow when you know the cash-flow could double or triple as a STR.

If you were to be sued and loss, where would they fall in terms of collecting money?

IMO it will be a loss.

Many companies will do notes or bonds that are unsecured debt against company as they don’t want to pin it to every asset which is not uncommon - but when they take on additional debt that is secured and/or start to incur massive losses that’s when it gets hairy.

Pick your poison carefully though or it can cause a loss on both sides.

If you've got losses or a favorable tax situation then take the commission by all means. 

Well it seems like you could just let them out of the lease, but then you have turnover costs, including time on market to find a new renter- meaning you're going to absorb loss is possibly because of this.

If there is a loss and you want to preserve those losses to offset income when you exit out the deal, probably file. 

However, the money I’d save by not paying $3500/month mortgage is $42,000 after 12 months – thus recovering the money paid on the capital gains tax.QUESTION: would you advise selling the rental to pay off the new home and take the $1400/month rental income loss (and gain $3500/month savings) or would you advise keeping the rental?