So my understanding is that we will be able to write off the money paid to the contractor and our holding costs against our ordinary income this year since this is a flow through entitiy and then pay taxes on the sale on the 2020 returns.

I have seen this done many times in a commercial setting post GFC.. were banks wanted notes off the books any means possible.the issue you will have is debt relief as it relates to the IRS>. when the bank takes a big haircut they send out a 1099C and the amount they took that was less than owed ( so they can write it off as loss's) has to be reported as ordinary income for you... so check through all the angles first.

Prefer nothing out of ordinary and unique.

Nothing out of the ordinary here, the only question will be, "will your property appraise for the next sale price of your future contract".

That would have been the next option for you to look at.Bottom line - there's no reason to pay any tax - let alone the exorbitant ordinary income tax if you have the time to plan.

The second would allow to subdivide an existing SFH lot into two independent lots, to encourage construction of second homes in back patios.

@Joseph Taylor - consider ordinary income tax as an expense even if you are holding for more than a year you might be considered in the business and your real estate is inventory if the goal is to flip.

Section 1250 is taxed at your ordinary tax rate up to 25% and Section 1245 is taxed at your ordinary tax rate.Here is a simplified example of depreciation recapture.You purchased a residential rental property for $750,000.

If you don’t have a loss, RE professional does not good.Or if you have less than 150k AGI, you are entitled to take a loss.However, if you have a rental loss greater than 25k and/or you have AGI above 150, than RE pro would be helpful.What people don’t understand is that even though you qualify as RE professional, it does not automatically make you rental loss as non-passive and deduct it against ordinary income.

Did a walk through today on a potential rental purchase of a patio home and while walking the back yard of this 2/2 there were 2 small dogs barking through the fence next door.