You have to include the capital gain from the sale of the property which will likely put your taxable income above $89,000.Some of the capital gain will be taxed at 0% and the remaining will likely be taxed at 15%Do not forget about state taxes.

You will create a taxable event that costs you 15% of your profit, plus don’t forget the 3% surcharge on capital gains over $200,000.  

I would be happy with a wholesale operation that yielded me $200K taxable net a year in 2024 dollars.

Normally in a 1031 exchange that $500K would be taxable beause the IRS sees that as taking profit. 

It should be noted that qualifying as a real estate professional doesn't guarantee rental real estate income will offset other net taxable income.It just allows a taxpayer to apply the material participation rules to rental real estate for a non-passive/passive determination.Consult your tax CPA/EA.

Each time you sell crypto, it is a taxable event, just the same as selling stock in an investment account (with exception to tax advantaged investment accounts).

(Turning it in to a rental makes those gains taxable and will probably take a decade just to break even on taxes.)2) This is the ideal rental you would buy if you had the cash in hand instead of this home?

There are some expenses (mostly noncash items) that can be added back to your income - depreciation is the most common/well-known.If you have strong revenue and are reporting a lot of expenses to reduce your taxable income, a bank statement loan may be a good option for you.

(You must complete the sale before 3 years passes from your move out date, so it can’t be a rental for 3 years.)So…If you have a large capital gain that will become taxable when their lease expires (both federal and state income tax) you pretty much have to sell before that date or not for at least 10 years just to break even with selling now. 

The barrier is the additional complexity - now you are operating two sets of books, and filing two tax returns, and have more operating agreements, more state registrations, etc, need to manage cash better, need to keep in constant mind that your rents need to be a supportable FMV, which may require getting third party certification on your rents so that in the event of an IRS audit, what you have done is supported.In short...the size of the project, and the taxable income, need to be of enough scope to make all the additional costs and annoyances worth it.