Value $900,000; $600,000 debt, $200,000 basis; 7% sales commission, only him- mother is deceased- $250,000 cap gain tax free, $70,000 sales concessions or repairs, capital gain tax on $550,000 less costs,  etc etc.  2 out of 5 year rule, can he live in other buildings?

Where you hoping to flip or keep for passive gain? 

., and the ability to offset W-2 income may have limitations due to the passive activity loss rules.

I want to buy him out because the property has a 3% mortgage rate, has gained 100k in equity the last 4 years and cash flows 1k a month.

Is wholesaling a good first step for gaining experience?

For example, deductions on Schedule E might impact passive activity loss limitations or eligibility for certain credits.

I would not include appreciation since that is an unrealized gain.

My main plan to use real estate for is to eventually generate passive income.

That's a handsome return for a pretty passive approach.  

The IRS considers rental income "passive," and losses can only offset other passive income unless you qualify as a Real Estate Professional.