Residual Income: The amount of money left-over after you have paid all of your ordinary and necessary debts including the mortgage.

You're not, you're paying ordinary income tax plus 15.3% SS/med.

@Stephanie Irto that is what I was thinking as well and I looked at the guidelines with bothmy broker and CPA and we all agreed...but basically the depreciation is denoted on my K-1 as an "ordinary loss" because there isn't a specific line item for depreciation on the K-1.  

Unless you have something out of the ordinary going on, they should be able to help you through it all.

In other words, just because you do something in a C-Corp, that does not change something from Ordinary Income to Capital Gains.

The total of the above deposits shall secure compliance with the terms and conditions of this agreement and shall be refunded to RESIDENT within 21 days after the premises have been completely vacated less any amount necessary to pay OWNER: a) any unpaid rent, b) cleaning costs, c) key replacement costs, d) costs for repair of damages to apartment and/or common areas above ordinary wear and tear, and e) any other amount legally allowable under the terms of this agreement.

The difference is pretty substantial and I am planning on correcting the past 5 years of returns and submitting the amended returns to the IRS.I have not received any additional deduction to ordinary income during this time as I do not qualify (joint income is > $150k). 

and what this website said http://www.thetaxadviser.com/issues/2014/nov/tax-clinic-06.htmlsays "One shortcoming of an ESBT is that its S corporation portion is subject to the highest rate of income tax on ordinary income (currently, 39.6%). " Hypotheically, lets say there is a trust with 3 UNMARRIED people in it.

Generally speaking, your flipping income will be subject to your ordinary rates (not capital gains) plus self-employment taxes (another 15.3%).

This will then cause you to be taxed as ordinary income.