For tax, a distribution from an S Corp is generally a non-taxable withdraw of capital (i.e. a balance sheet movement, not an income statement item).

By holding it for a year we cut our capital gains tax as well, which is something you often get hit harder with on flips, There are plenty of ways to win at real estate though, I agree.  

So as long as you own the replacement you’ll never pay the tax. As

You pay tax as the rent was earned.In this scenario, if you decide on February 15 of the following year that the tenant is never going to pay - THEN (and only then) do you deduct that as Bad Debt Expense.  

I would add that if you sell you should account for closing costs, real estate agent fees, and long term capital gains tax as well, unless you opt for the 1031 exchange route.  

Just trying to beat the capital gains tax as best we can-lol.

Can I be subject to self-employment tax as a private lender?

Is the $415 property tax a supplemental?

The reason he doesn't want to sell this house is because he's discouraged by the capital gains tax as well as the effort he would have to put in to list it.

If you move forward with the sale you could look at using a 1031 exchange for a portion of the sale to defer as much tax as possible to another investment.