@Sam Stolt...sorry for the real late reply....been on vacation :)If you have an insurance claim and the adjuster sees something that makes them question if something was done out of code, they may investigate it and if they find its was not done to code or w/o permit, they could deny the claim....they would have a good case to deny it.... depends on the insurance company.My own personal experience...... my own residence..... had 2 small room additions that we knew at the time of purchase were not done with permits, but were very basic and we had no code concerns...... 6 years after purchase we got a call from the city...wanted to know if we ever finished the work that had an initial permit pulled on...never got final inspection or approval....... turns out the original owner had started a permit for an "enclosed patio".... they then built full on room additions.

.➡️ Operating ExpensesThe IRS lets you deduct “ordinary and necessary” expenses paid to manage your Memphis rental property and run your business (i.e. advertising, pest control, repairs and improvements, tenant screening, utilities, and more.)➡️ Property Taxes and InsuranceInvestors have to pay property taxes and insurance regularly.

When I run a Profit & Loss Report, the general categories that appear in the report are Income, Costs of Goods Sold (Property Costs), Gross Profit, Expense (Overhead Costs), Net Ordinary Income and Net Income (The words “Property Costs” and “Overhead Costs” do not actually appear in the report).

Of that, $150k would be recaptured at ordinary income rates up to 25% and the remaining $150k would be recaptured at long term capital gains rates. 

Replacing brick patio area with stamped concrete.

A property management company generates ordinary income and there may be some tax planning opportunities by setting up a corporation or an LLC to be taxed as a corporation.

Too many rules and you can't  even take depreciation.Stick to activities that generate ordinary income inside an SDIRA. 👍 

After accounting for ordinary expenses and taxes on that six figure salary, the numbers don't add up, so such a vague response just raises a lot of red flags.  

If you're rental is paid off, all that extra positive income will be taxable just like ordinary income.

This will be taxed as your ordinary rate and be subject to self-employment tax.