Ordinary people don't.

It is my understanding flipping houses is taxed at ordinary income.

If your annual household income is $50K you don't bear a huge burden, if it's $250K you won't like that margin tax rate on ordinary income (I'll skip the whole qualified dividend conversation to keep it simple).  

It is usually considered to be ordinary income and may also be subject to Self Employment tax.Second, the taxes on this structure do not vary from state to state.  

I am looking for some of the experience apartment investors and developers out there to regale me with some stories about unlikely/unusual/out-of-the-ordinary things that have been discovered in the inspection/due diligence period of buying or developing apartment properties.

The inside mostly still looks like a garage, but it's got like sliding patio door-thing where the garage door used to be.

You will face a large penalty, and the remainder will be treated like ordinary income. 

You're probably looking at ordinary income tax maybe along with self employment and ACA surcharge as well. 

If you are in the business of issuing mortgages - you may need to report it as ordinary income(line 1).If you are not in the business of issuing mortgages - you may report it as interest income(line 5).

It's just the rules don't make sense when it comes to 1099 filers who write off far more than W-2 filers with the same income, much of which is ordinary expenses that both incur, i.e., part of their mortgage for office space, vehicle expenses, cell phone, home phone, computers, printers.....I could go on for pages, but you get the gist.