There is no way around the gain or loss on the "deemed sale of the house" but there might be a way to exclude debt discharge income. 

My margin here after selling/holding costs is roughly ~200k, of which I expect to spend 60k on renovations excluding the window replacement. 

You can not have anyone sign a waiver to exclude you from liability.

Many policies for a personal home exclude business pursuits and as a child sequence Air BNB would not be covered.

@Manuel NaranjoThe other posters are correct - it is section 121.I think your accountant is having an issue because he is unsure of how to tell the software to exclude the gain on the return.The sale still needs to be reported on the return. 

If we excluded the ac on the lease that would be fine.

Not exclude , I see that the Multifamily's are listed at lower prices because they are being sold as is, fully occupied, and rent controlled.

I had a light bulb moment and listed the 3/2 house as a 2/1 house by locking up and excluding my master bedroom from the listing (way easier, good compromise for me).I'm paying my next-door-neighbor-cleaning-lady $25 per turnover.

Usually the open permit and violations will be excluded from the title insurance.

There is a full-time staff of five (excluding owner), and the average employee tenure is around 10 years.