I understand for tax purposes that I can only take two-thirds of the expenses related to the house to offset the rental income.

I feel Ike they pivoted quite a bit in the last few years since city and subsequent county license requirements spurred an STR plateau and the motivations are a bit deeper and multi-purposed now.Take parallel economies, such as Uber/Lyft, the ONLY two TNC license holders in the state and each year pay an excise tax of a few hundred thousand a piece, if not more (just for the permit, not including the whats taken from drivers).

It's crucial to align this decision with the nature of your income sources and their respective tax treatments.

Domicile: WA State (income tax free)Property location (Texas): (income tax free)LT gains + Depreciation recapture ~ $300k on a $500k income property ~effective / average tax rate = 12% for past umpteen yrs (relatively low income, avoiding IRMAA and doing Roth rolls (no 'realized' income, just transferring from tIRA to Roth = vast majority of annual MAGI income)In the end (coming soon, ~17 yrs) ALL remaining estate will go to charities / Charitable Foundation / DAF.

This strategy, if combo with REPS (real estate profession status) basically checkbox on your taxes is key to canceling out full-time W2 employment.If this is new to you... 

If the tenants owes $3 I don't bill it. 

Seller financing does not always sell for more money and if there are big price declines then you may end up having to forecloseMy recommendation is to sell it with borrower getting traditional financing and put that $ in a tax friendlier account than loan interest = ordinary income rates

If so, would this still cause issue with the S-Corp tax rules?

The slightly confusing part is the Business License Tax Certificate.

Is there anything different in terms of STR tax loophole if I do STR by the rooms?