It is your first year when you get the major tax savings windfall due to cost segregation and bonus depreciation.

Now I can see some builders having an issue with comps.. but other than that its crazy to take these funds as income and then pay tax and plow it right back in.. 

@Andrew Slezak Opportunity Zone (OZ) investing allows you to defer capital gains taxes (e.g., from crypto) by reinvesting the gains into a Qualified Opportunity Fund (QOF) within 180 days.

And must be pretty significant unreported income if it would have caused $45k in state tax liability.You advised your client to wait past the expiration of state statute.

The US Government and the States have but one way to deal with this, taxes.

From a tax standpoint, there are additional disclosures to make when selling a business asset for less than fair market value to a related third party. 

So if you have the property for a total of 10 years, moved in at year 8, little value or tax advantage.

So the actual tax bill is going to be impossible to predict without looking at the individual owners' personal tax situation.How much of a gain do you think you made on your first flip?

The cashflow should cove ALL of the expenses for the primary (mortgage, taxes, insurance, utilities, etc) AND put money in their pocket.

Repairs made while the property is your primary residence are not deductible, but improvements can increase your cost basis, reducing future capital gains tax when you sell.