The intent of the law is to address the needs of homeowners by making the taxable value of their homes more predictable.

@Andrew Linderer Unmarried individuals can exclude up to $250,000 in profit from the sale of their main home, and you can exclude $500,000 if you're married.So if you're single and you realize a $200,000 profit on the sale, you don't have to report any of it as taxable income because this is less than the $250,000 exclusion amount you're entitled to.

Your CPA is one of the many who apparently is not aware of this change introduced in 2009.In your case, 75% of the gain is excludable, and 25% is taxable.

This is a specific case of unrelated business taxable income or UBTI, and is subject to unrelated business income tax or UBIT.

Cash out is not a taxable transaction. 

For a business owner with $100,000 taxable annual income, the net tax savings for using an S Corporation instead of an LLC in taxes paid every year can be as high as $7,500.Holding PropertiesWhen holding properties as a cash flow investor, the LLC (or LP) is generally the better choice because an LLC has more liberal distribution rules.

I asked when should anyone consider switching to an S-Corp, and the answer at the time was once you are making over 50k Taxable income a year through that business. 

@Ryan Melander, Any cash that comes back to you over or under the table is boot and would be taxable.  

@Elizabeth Shelby I may have totally misunderstood what you said, or maybe you have received some incorrect information from the vacation rental home owners in your area, but you absolutely CAN add additional fees to the rental rate that you advertise on Homeaway/VRBO:Not only can you add whatever fee you wish, but you can also indicate if the fee is taxable or not.

I'm looking to buy another house ASAP.My question is how to minimize my taxable income this year while still creating a large enough debt to income ratio to allow another mortgage.