So in David's example you're a dealer and that 100K is going to be taxed at your ordinary state and federal income rate plus you'll probably have to pay employment taxes.What I've counseled some investors to do who are in the flip mode but are tired of the huge dealer tax is to change your model slightly. 

It's gives you a paper deduction based on your property "wearing out" and can be used to offset rental income and even ordinary income within limits.

@Syed H. given this seems like a new investor let's clarify that you mean because it is short term capital gains, (unless you are a terrible flipper and held for a year or more) Short term capital gains are taxed as ordinary income and are not tax exempt.

Ordinary income tax from rent and depreciation.

Income from both fix and flipping and from wholesaling is ordinary income.  

Cashflow is taxed as ordinary interest income and can only be offset by depreciation up to about 7%.In summary, I would focus on finding investments that cashflow up to about 7% and where the rest of the gain will come from equity growth, likely from a value-add strategy.

The accounts typically have to be registered with the state governing body and should be trust accounts, not just ordinary personal/business bank accounts.None of this sounds right. 

The monthly mortgage payment from this loan is about 50% of John's monthly ordinary income from his W2 job, which essentially maxes out his DTI ratio, unless the rental income from the house is factored in which would offset the mortgage payment.The house is finished in Aug 2021 and the house appraises for $370,000.

My lease says tenants are responsible for ordinary pest control, just like I am in my own house.

@Cody L.Sure, if we assume a flip, it's all ordinary business income subject to SE or cap gain and the breakout doesn't matter as much.If it's a buy and hold rental, an itemized rehab invoice allows a (competent) tax pro to determine what can be expensed in the current year, what must be capitalized, and/or how much to take in partial asset disposition on the pre-rehab structure.