Many people WILL pay regular income taxes on the net income you earn, but others will receive passive income treatment.

You can get capital gains tax treatment if you sell it after living in the house for 2 out of 5 years (READ: KEEP AN EXTRA $1000+ FOR EVERY $10,000 IN PROFIT).Make it nice (visit your neighbors that have nice looking houses), not over the top, and take care of the house while you're living in it.

I tried hard to buy in Biloxi/Gulfport for the go zone tax treatment.

My wife thought I was bad.Since you're not taking advantage of the favorable tax treatment for "flipping" your primary residence you'r paying a bit too much in taxes.

William,This transaction will not qualify for 1031 exchange treatment.

You have to learn not to react to this type of treatment.

The advice rendered is generally that your 1031 exchange has failed and will not qualify for tax deferred treatment; in short, it’s taxable.

Having the sore thumb of the area is never a good idea.

If you don't, you can go through the listing agent and since they would receive both sides of the commission, you should get pretty good treatment.

Like a good investor, I am prepared to hold the house for the Congressionally approved 5 years and live in the house the last two years to receive favorable tax treatment should all of the above fail --praying all the while for a decent tenant who could actually take care of a freshly rehabbed house AND change filters AND cut the grass.