That being said if your objective is to cash flow then -$100 month is not a positive cash flow situation no matter how you rationalize the investment. 

It says you get a pro-ration of gain up to your 121 exclusion, which is what @Michael Plaks said.

All I had to read was the first section, with all the "don't includes" and choices no smart REI would ever make, and knowing then that the rest of this post is based on fictional facts and bad (really bad) assumptions and rationalizations, I knew the rest wasn't worth reading.

The only thing having sympathy does is gets you into trouble for making emotional rather than rational decisions.

I think it is very possible to do a rational assessment of certain markets, and come to the conclusion that a free and clear property provides the best tax advantaged returns and cash flow combination for someone with a certain risk tolerance and viewpoint on the market. 

ThanksBanks are not rational.

You're trying to rationalize a bad REI position. 

Some appraisers even calculate in the buyer's offer amount when calculating area values.... because it's a reflection of how much a willing buyer is offering (fair market value).Even further... some appraisers will even consider when it's a bidding war and multiple offers were in the ballpark of the winning bid, thus justifying the winning bid based on how other rational buyers were willing to pay even when past sold comps were much lower.Another reason sold comps cannot be treated as static prices is due to the dollar consistently losing it's value. 

'Its a business' is just rationalization that allows you to be a jerk.

You are asking a rational question about an irrational Fed.