However, the question I need help is below:
1. My wife and I purchased the house
2. I setup an LLC to manage the renting (50% of the house) on Airbnb -- but my wife and I own 100% the house and living in the house, (LLC does not own any portion of the house)
3. Report all income and cost and expense, and take depreciation for half of the house - of cause.
4. After few years, sell the whole house with a total $500,000 capital gain after consider Depreciation recapture for the half of the house.
5. Since the LLC was running Airbnb for half of the house, can we still get the $500,000 capital gain tax exemption when we sell the house?
Again, can't provide a definitve "yes/no" answer. On the personal use portion of the sale you will get an exclusion equal to the percentage of the entire property that is personal use only and was "never" business use of any type.
On the business use side, you have to have used that portion as your primary residence for at least 2 of the last 5 years you owned it. Depending on the status at the time of the sale, that will determine if that portion qualifies for a prorated exclusion, or no exclusion at all. It gets complicated, and is why you "need" to seek person-to-person fact-to-face contact with a tax professional in your local area so they can educate you on all of the "many" possibilities here.
