However, if I do more loans and are considered "in the business of loaning money", then the income would be taxed as business income (ie. ordinary income).Related to the above, if I qualify for REPS, could the income from private lending be theoretically canceled out if I have losses from other RE projects, rental properties, etc?

Only one you meet all three of these thresholds, may you write-off passive losses against your ordinary income.However, you will still deduct all expenses, depreciation, amortization, etc. on your Schedule E.

So my ordinary tax rate should be zero by everything I can gather.

Income from holding notes comes through as ordinary interest income.

So my understanding is that we will be able to write off the money paid to the contractor and our holding costs against our ordinary income this year since this is a flow through entitiy and then pay taxes on the sale on the 2020 returns.

I have seen this done many times in a commercial setting post GFC.. were banks wanted notes off the books any means possible.the issue you will have is debt relief as it relates to the IRS>. when the bank takes a big haircut they send out a 1099C and the amount they took that was less than owed ( so they can write it off as loss's) has to be reported as ordinary income for you... so check through all the angles first.

Prefer nothing out of ordinary and unique.

Nothing out of the ordinary here, the only question will be, "will your property appraise for the next sale price of your future contract".

That would have been the next option for you to look at.Bottom line - there's no reason to pay any tax - let alone the exorbitant ordinary income tax if you have the time to plan.

@Joseph Taylor - consider ordinary income tax as an expense even if you are holding for more than a year you might be considered in the business and your real estate is inventory if the goal is to flip.