As long as you live in that new house for at least two of the five years before you sell you can exclude $250K of gains ($500K if married filing joint.)Of course that's assuming you have gains.

I did not exclude real estate as that was part of my diversification. 

All depends on area, however, many investors would like to see a 10% return (thus 10 cap) and so based on $8400 gross monthly, and based on the 50% rule stating expenses (excluding debt service) will run 50% of gross, your NOI (net operating income) is $4200 monthly/$50,400 annually.

Would they exclude it from the DTI altogether in that case?

I even sent the buyer's agent the red flags listed in our guidelines that an underwriter would deny a "flip" transaction for, and this property and all parties involved pass with flying colors.J ScottJ - I get your point and agree to some degree, but what happens when several sellers start excluding offers from certain banks based on rumor or misconceptions of certain banks in the industry?

Given the fact that the owners home is in dangerous peril of foreclosure, how do you work with the owner/agent to begin discussions about strategies like "subject to" etc.It seems that they would be fairly uninterested in a sales strategy that virtually excludes them from any profit.

You can use the provisions of Section 121 to exclude profit on the sale of your primary residence from capital gains taxes, while the sale of the rental units is a taxable event.During your period of ownership, you decided not to simply depreciate the entire rental property (excluding land) over 27.5 years, but instead you segregated your rental units into different components and allocated your cost (depreciation basis) for the entire property among the 5 year property, the 15 year property and the 27.5 year property.

Terry Portier and Dale Black are you both talking about sales prices or cost to build (including or excluding land)?

If you own the property and live in the property as your primary residence for at least a total of 24 months out of the last 60 months (2 out of the last 5 years), you can exclude upto $250,000 if you are single or upto $500,000 if you are married from your taxable income under Section 121.

I knew it was comming, the CFPB is introducing regulations for anyone who is not an accredited investor (less than a Mil in net worth excluding personal assets) for anyone who owns more than three RE properties in any one year and require them to be licensened Realtors or otherwise regulated under a list of exemptions, none of which apply to small investors.