Maybe all the way to zero or even a negative taxable income on the rental.

Easier to look on an annual basis.Income: $12,000 (rent)Expenses: $4,800Interest: $4,800 (only the interest part of the P&I payment, just a round number for the example)Depreciation: $2,000 (value of improvements / 27.5)Taxable Income: $400 (12,000-4,800-4,800-2,000)Tax: $112 (at 28% marginal rate)So, the income isn't totally tax free, but very close.

The assignment fee is ordinary income, so its taxable at whatever your marginal rate is.

Their thirds with each be taxable income for them, your net proceeds for you.

Why not equate all the expenses that occur monthly, and the balance is your pre-taxable cash flow.

Only the net gain after all costs, both buying and selling, and any improvements is taxable.

You need to check with your state to see if the transfer would be taxable.

Actual taxable income on rentals is typically pretty small.

Buy closing costs: $2000 (orig fee, plus all the other crap that shows up)Insurance: $500Inspection: $300Rehab: $7500Purchase: $92,500Total all-in cost: $102,800Holding cost for six monthsInterest: $3000Second insurance: $500Utilities: $600Taxes: $1500Total hold: $5600Total investment: $108,400Loan: $87,500Cash: $20,900SellPrice: $125,000Commissions: $7500Sell closing costs: $2500Loan payoff: $87,500Sale proceeds: $27,500Less cash investment: $20,900Net profit, pre tax: $6600That's taxable at ordinary rates.Your low money costs help vs. hard money.

Refis are loans, not taxable.