Many states do have exemptions if the beneficial owner has not changed - like in your case.Federal - there are no income tax issues here. 

Most of the laws are for LTR and either there's an exemption for STR or it's a serious gray area.   

There are often homestead exemptions and other regulatory issues that could cause issues with your loan, even if it were business purpose.

You may not have $100k.Also, you may qualify for the "unforeseen circumstances" exemption and be able to avoid tax, based on what you described.

You will lose your homestead exemption which will raise your taxes, so consider that if you decide to hold.Being an OOS landlord myself, it's not that bad as long as you find a good PM and the house is in descent shape, you vet your tenants well and have protections in your lease.

Additionally, if the Sarasota home has been their primary residence, all gains up to $500k will be tax-exempt, so there will be no tax bill to pay (consult your/their accountant first to confirm).

With that, we became the American Association of Private Lenders—and we began spreading the word.Finally, Some DefinitionsUnderpinning the concept of minimizing the use of “hard money” in our industry is a recurring theme of standardization—that the root of the issue is too many interpretations of what the same terms mean.We offer up the following definitions for discussion, debate, fine-tuning, and eventual consensus [last updated 5/9/2022]:Private lender: Any non-depository individual or entity that primarily originates business-purpose loans secured by hard assets, generally real estate.Hard money lender: A subset of private lender where creditworthiness is determined solely by the securing real estate collateral.Correspondent lender: A subset of private lender where the closed loan is sold to investors.Portfolio lender: A subset of private lender where the closed loan remains in the lender’s portfolio.Fund manager: A subset of private lender where, depending on the fund structure, the deployed capital is sourced by offering exempted securities to accredited and occasionally non-accredited private investors.Private investor: An individual or entity that seeks a return by deploying capital through a private lender or fund; the investor may or may not be named on the loan’s promissory note.Private money broker: Any individual or entity that acts as an intermediary between a borrower and a private lender without directly originating the loan.

@Roger MatthewsHomestead laws and the Homestead exemption for property taxes have nothing to do with each other. 

Know the elevation, the possibility of a LOMA exemption (flood insurance requirement exemption), the assumability of the seller's flood policy etc.

While this may exempt it from being classified as a rental activity, active participation remains a requirement, necessitating compliance with three tests: spending 500 hours on the property, dedicating at least 100 hours (and more than any other participant), and performing all the necessary work needed.Additionally, long-term viability and consideration of depreciation recapture are important concerns.