Would it be treated as short term capital gains or ordinary business income paid out as dividends from the LLC/S Corp? 

Make a run for real estate professional status to open the avenue to lowering your total AGI with real estate passive losses now being treated as ordinary losses.

I heard arguments that this is something called sweat equity and that the IRS will tax it as ordinary income.

However, it may not count towards your second material participation test for any more traditional rentals and get to 'work around' the passive activity loss rules - Short Term Rentals can be classified circumstance pending as "ordinary" type income, thus falls in a different bucket. 

Is depreciation looked at the same as ordinary business losses?  

This means you might be liable for capital gains tax on the appreciation in value that resulted from your efforts.Income Tax: If you're involved in a real estate project and are compensated for your time and skills, this compensation may be subject to ordinary income tax.

@Anthony RegaThe Gain and lending (providing a loan) on the home are two separate thingsYou will pay interest income (taxed at ordinary rates) on the interest you receive.

My accountant says that (to his knowledge) since my wife is a real estate professional, the gains from the sale would count as ordinary income and therefore could not be used to offset stock trading losses.I guess I'm looking for either a more-knowledgeable accountant, or a work-around.

If you qualify as a real estate professional, you may be able to deduct real estate losses against non-passive income, which can include ordinary income and potentially capital gains from real estate activities.However, the treatment of capital gains from the sale of stocks is generally separate from real estate activities.

Let's break down the differences between the various retirement account options and then discuss which might be best for a high-income, self-employed widget manufacturer looking to invest in single-family rentals.Traditional IRA (Individual Retirement Account):A Traditional IRA is a tax-advantaged retirement account where contributions may be tax-deductible (subject to income limitations).Investments within the account grow tax-deferred until withdrawal.You can invest in a wide range of assets, including stocks, bonds, mutual funds, and real estate.Withdrawals are taxed as ordinary income, and early withdrawals may incur a 10% penalty.SDIRA (Self-Directed Individual Retirement Account):An SDIRA is a specialized type of Traditional or Roth IRA that allows you to invest in a broader range of assets, including real estate, private equity, and more.It offers more investment control and flexibility compared to a regular IRA.It requires a custodian or trustee experienced in handling alternative assets.You must follow IRS rules and restrictions for investments within the SDIRA.401(k):A 401(k) is an employer-sponsored retirement plan, typically offered by larger businesses.Contributions can be made by the employee on a pre-tax basis, and employers may provide matching contributions.You can typically invest in a selection of mutual funds and, in some cases, your employer's stock.Withdrawals are taxed as ordinary income and may incur a penalty if taken before age 59½.Solo 401(k) (also known as a Self-Employed 401(k) or Individual 401(k)):A Solo 401(k) is designed for self-employed individuals or small business owners with no employees (other than a spouse).It combines features of a traditional 401(k) and a profit-sharing plan.Contributions can be made as both employee and employer, allowing for higher contribution limits compared to IRAs.You have investment flexibility, including the option to invest in real estate.Withdrawals follow standard 401(k) rules.Now, for a high-income, self-employed widget manufacturer looking to invest in single-family rentals, the best option among these depends on several factors:Income Level: High income earners may benefit from a Solo 401(k) because it allows for larger contribution limits, especially if you're looking to maximize retirement savings.Business Structure: If you're truly self-employed with no employees other than a spouse, a Solo 401(k) is a good fit.