This equates to about a 30.8% tax free and 69.2% long-term capital gains tax.For illustrative purposes (*simplified numbers*): 1) If held another 2.5 yrs to meet the 5 yr mark, and let's say the gain is $300,000, then $92,400 tax free and $207,600 taxed at long-term capital gains rate.2) If I sell now and let's say the gain is $300,000, then all $300,000 would be taxed at the long-term capital gains rate.Therefore in this example the potential savings of holding is: $92,400 x LTCG tax rate. 

Which just illustrates how “like” some of these properties might be. 

And example illustration using your actual numbers that give you that yield?

This case study illustrates how Cross Mountain Capital ("CMC") achieves exceptional returns in an "under the radar" market.

But to get close for illustration purposes, You're pretty close on that $20K basis in the second property.The 400K profit would have been allocated between the two purchases (actually the basis would have been allocated but that takes the profit along with it.So maybe $320Kish profit to the large property and $80K ish to the smaller property (making it's basis around $20K.Sell that property for $150 and you'd pay tax on $130K ish.

The example you provide in the OP is a perfect illustration of this principle. 

The whole issue of dealer v investor is highly complex and controversial, as illustrated in the response from @Ashish Acharya.

Let's go with 15 years to illustrate.

The Morcos case illustrates this concept clearly and concisely.Don't worry about a home office deduction. 

Check out show 200 of Bigger Pockets Podcast, great step-by-step illustration. https://www.biggerpockets.com/renewsblog/bp-podcas...