They did it so they could capture ordinary income from dealer/developers who hold property more than a year. 

That option is obviously the most out-of-the-ordinary, and I am curious about why that is, since it does make better sense to me on paper than #2.

So 50% and 25% is not out of the ordinary.

If they seller finance it they can defer some taxes but the interest payments are taxed at ordinary income rates once you hit your basis everything from their is also ordinary incomeNo real way to avoid Uncle Sam.If the property was in a living trust and that person was going to get the house, then there is that option but it’s little more complex and need to speak to your cpa and attorney

That 20K is ordinary income, taxed at the highest rate.

However, I would be careful with the proposed tax hike.He will pay capital gain, not ordinary gain The gain that he will recognize with each year’s payments would be the recapture first.

So I have an acquaintance that has a substantial amount of real estate (managed by a property manager), and they have a lot of ordinary income from various sources, resulting in a high income tax each year.

W2s are Active/Ordinary income. 

I know that with flipping properties, the profit generated is taxed as ordinary income.

The profits from a flop are ordinary income.