This is separate from the tax treatment of the insurance proceeds.Your CPA's suggestion of not doing a partial disposition and instead offsetting the insurance proceeds with the cost of the new roof might be less favorable in terms of tax planning.

The key factor is ensuring the property qualifies for favorable tax treatment by adhering to IRS rules regarding short-term rentals and material participation.For the 7-day rule, the IRS requires that:The average guest stay must be seven days or less for the property to qualify as a short-term rental.If the average stay is 30 days or less, you must provide substantial services similar to what hotels offer, such as daily cleaning or concierge services.Regarding material participation, to further classify the income as non-passive, you must meet one of the following criteria:You spend more than 500 hours actively managing the rental in a year.You manage the business yourself and spend at least 100 hours, with your involvement exceeding that of any other person involved in the rental.Please note there are actually 7 ways to qualify, the above two are the most common.

However, the exact treatment may depend on your accounting method (cash vs. accrual basis), but most individual taxpayers use the cash method, meaning they typically report expenses when paid.

You should be able to see this on your return, both treatment and election. 

However, I will say that LLC is not recognized in Canada and deemed a foreign corporation, resulting in unfavorable tax treatment.  

@Greg JungeFrom the tax side your CPA/EA will have to start tracing disbursements to ascertain the tax treatment of related interest.Also if you take a draw from the HELOC, and put in a checking/savings account for a month or number of months while you look for a deal, it's not business interest like most would think. 

Tax treatment of LLCs is very controversial in this case.

Hey Elizabeth, Since you are selling your business you are likely getting capital gains treatment on that gain if you have owned the asset for over 12 months.

I am probably going to try renting my unused basement for STR in any event due to incremental cash flow (STR loophole or not due) but wanted to check on the right accounting treatment. https://podcasts.apple.com/us/podcast/tax-smart-real-estate-...

I would say accountants have to gain here as well, I would add the entity doesn't result in better tax treatment, ideally, it is not done (in general).