Just a few comments - if he withdraws or takes the distribution from the 401k it is taxable as ordinary income and not sure what impact that would have on his tax situation.  

I ALWAYS tell the wholesaler to make sure they are transparent with the end buyer and their lender because MANY times if they aren't transparent about the double closing then the underwriter will catch it last minute and bring up the fact that the current deed holder isn't the wholesaler and that will kill the deal many time.There are some underwriters that don't catch it and things go smoothly.Then there are some conventional lenders that aren't familiar with the process and think it's fraud and won't lend on it.So sometimes I inform the wholesaler to let the end buyer go direct with the seller, do a single closing, Increase the purchase price by the amount of the wholesalers spread and put the fee on the SELLERS side of the HUD because the lender WILL NOT pay for the wholesalers fee, but if it's wrapped into the initial AB contract (now between the seller and end buyer) then the wholesalers spread isn't brought up, it's merely a line item on the SELLERS side HUD and nothing to do with the conventional lender and it will close "100%" of the time because it's a normal ordinary closing to that lender then.

We do take advantage of deductions- maxing out both 401ks, HSAs in 2023 and itemizing deductions and will do so in 2024 - so we fall at the lower end of the 24% federal bracket (MAGI of $240-260k- so additional ordinary income is 24% income tax plus whatever Medicare/Social security we must pay on the $40kI know I can retain all the earnings in the LLCand 1031 exchange until we no longer have W-2 wages to reduce our taxes, but I plan on using the $40k for a personal home improvement - replace two HVAC systems and install a new wood deck and landscaping).

Fits well with the East school I am buying in Springfield, Vt.My original investment model was to buy and hold SFR's for at least one year and renovate the properties and then the transactions would be subject to long term capital gains or better still I'd do 1031 tax deferred exchanges and avoid ordinary income taxes.

In fact, it's hard for me to figure out a good reason to do yearly leases as an ordinary residential landlord - and yet, most landlords (including myself) and property managers use yearly leases.

I don't think TN has a state tax soIt sounds like you'll have ordinary income tax fed but really not much depreciation.  

You would pay taxes on that $5k which would be taxed typically as ordinary income if you are a LLC.Next year you sell the loan for $60,000.

"Frequency" Real Estate Investors generally want to avoid being classified as Real Estate Dealer because the gains from sale are taxed as ordinary income and you don't qualify for 1031 exchange. 

You should expect to pay federal income tax at your marginal tax rate (same as you'd pay for your W2 income or other ordinary income), plus self-employment taxes on some or all of the income (depending on your entity structure). 

Area is relatively level, nothing out of the ordinary about the lot.