I followed the post that Brit F. recently posted about and it worked like a charm to get the banks approval letter.

Account Closed has the right idea but instead of passive income vs non passive income it is passive income vs ordinary income.If you are able to implement a real estate professional status tax strategy (REP) you can use passive losses from syndication deals to lower your ordinary W2 income.

Checkbook to write a big check to uncle sam for earning ordinary income instead of long-term cap gains ;)

Flip income will be subject to ordinary income tax, AND self employment income, period.  

So instead of paying astronomical ordinary income level taxes you avoid tax altogether with the 1031. 

Whatever profits you make on the property will be taxed according to the tax laws and your personal situation.If you rollover you 401k monies to a self-directed IRA, you can defer taxes on the gains of the property until you take the money out, at which time it is taxed at ordinary income. 

We aren't trying to do anything out of the ordinary here.

@Cassandra Popli The rent you pay is an ordinary and necessary expense for you to rent the property.

Therefore you would be subject to SE Taxes and have the asset taxed as ordinary income.Take an example where the property is purchase in the Owner of House, LLC. that pays a preferred return of x% then returns capital and profit in proportion to the original contribution.

Depreciation expenses can offset any ordinary income and capital gains can be deferred through a 1031 exchange.