That could put a good dent in most incomes.i believe “STR loophole” (ugh) has to be combined with something that provides large passive losses.  

Lending is about as passive as it gets.

I believe for the patient mostly passive RE investor that leveraged RE can do well but1) residential RE is not passive, especially compared to index funds and etfs.2) because non commercial residential prices are near an all time high, interest rate is near high for this century, rents are all time worse compared to costs (per 2 recent studies) that you would be entering RE at a challenging time and a time were most RE will not produce the returns that were easy to achieve prior to 2022.3) RE provides diversification, but may not far exceed the returns from passive options.  

Use savings from reduced living costs, equity gains, and smart tax planning to roll into the next property.You're actually in a great position to start (assuming you're in a college town).

(From what I understand, yes — but would love confirmation.)Are there standard timeframes for returning capital to a passive partner in these hybrid arrangements?

Looking back, I’ve found that shifting toward passive investing has not only freed up my time but actually produced stronger returns.

That $40K would be your capital gain, assuming no depreciation or selling costs.  

Since your wife will actively manage the Airbnb unit for more than 150 hours a year, the income and losses from that unit may be considered non-passive, which means some of those losses could potentially offset your W-2 and 1099 income.

Quote from @Srinivasa Subramanian: @Keith Jablonowski we experienced a similar issue with laundry and we swapped ours out with coin-ops which helped us to reduce these issues and generate some passive income as well.  

You don’t pay taxes on house 1 again, its gain was already rolled into the basis of house 2.