We lived in the property for 2 years and rented for 2 years to tenants, so by selling now, we ensured that we could avoid capital gains taxes.

Here are a few things that I like about the neighborhoods in Indy compared to other states: high rent-to-home-value ratio, consistent and gradual city development, relatively low property tax and insurance cost, affordable renovation service cost.

Plus it makes bookkeeping and doing taxes etc. more complicated and annoying/ expensive.

How is it a tax strategy though?

I imagine I can get his wages garnished or maybe collect from his tax return.  

After assessor comes out and consults with insurance company, they'll send demo guys out to come do demo work and remove wet drywall, insulation, etc. they'll usually put down dehumidifiers and let the place air out a bit to see what actually needs replacing and what was able to dry out.

Before you close, can the rent from your buddy and the midterm tenant cover your mortgage, taxes, insurance, plus a bit extra?

To make a new property cash flow with current prices, interest rates, taxes, and insurance, you're putting at least 40-50% down.

Immediately, I performed a Roth conversion, and instead of paying taxes on $50K I'm paying taxes only on $21K.

The only part that Property 1 pays on that loan is the escrow for property tax & insurance for Property 1.Thank you for your insight.You need to look at purchase price to determine cost basis, not how you financed the purchase.