So, the profit is taxed as ordinary income, including self-employment tax.Hope that helps. 

Thanks for the reply Chris.I believe the agreement was a normal owner financing contract, nothing out of the ordinary, closed through a title company here in Texas.

The problem with this is if you miss a payment, statute supports evicting you within 3 days (as if you were just an ordinary tenant).

Your patio & pool look inviting and sells well. 

Other than having to pay nearly half of that $500k to various taxes (I assume you've been reporting it correctly as active, ordinary income), have you been saving up that money? 

Account Closed, The calculation for your adjusted cost basis is - Purchase price + capital improvements - depreciation = adjusted cost basis.So regardless if you sell as a capital gain or as ordinary income (your use of the word flip makes the "intent" question relevant for that), Those capitalized expenses will impact gain either way. 

Roth is pre tax but the issue for those doing REP status to lower ordinary W2 income is that you don't get the passive losses from deals that you are investing through any QRP (roth or non roth).

But payments in the ordinary course of business should not be preference payments.

Instead the government eats the loss because we have decided as a society that there is a lot of value in ordinary people owning real estate, and given the example of the French and Russian Revolutions that's probably pretty accurate. 

And treating all gains on sale of real estate as Ordinary Income.