When it's sold it will be taxed as capital gains tax and may also have some unrecaptured depreciation which is capped at 25% and  recaptured depreciation as well which can be up to your ordinary income tax rate.

With you being qualified for an FHA loan on your next home that you're purchasing, will you be using the rental income from your departing residence to offset the mortgage payment on that property?

Net investment income tax= 3.8%I was aware of the Long term capital gains tax, but I was surprised to find out about the Depreciation Recapture and the Net investment income tax. 

A FICO score requirement of 650 or higher, along with at least three years of consistent income that's 3X the monthly rent, are also a good ideas.

Any tax knowledge of if people doing this strategy are able to take the losses from the cost seg study (on the ADU) to offset their W2 income?

I'm a software engineer on a sabbatical trying to find my path out of the corporate world.Looking forward to connecting!

This is what allows for so much more retirement income.

Sadly, the "home office" deduction is one of the IRS pet peeves meaning that you are more likely to be audited for this deduction when it is on your personal income tax return.

@Nate WilliamsWith one income, two kids, and limited cash flow, minimizing risk is key.

Also, focus on 2 years of job/income stability.Class D Properties:Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciationVacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions.