this simply means you are in the business of buying and selling real estate and your income from such is ordinary income and depending on how you have it set up.. your subject to self employment tax as well.. you are no longer a passive investor.. the  threshold I have always heard over the years is 7 or more in a calender year.  

I'm not an accountant - but in general a portion of every payment will be a ratio of 1) Long-term (if held >1yr) cap gain @15% 2) Depreciation recapture at 25%, 3) Interest at their marginal tax rate (ordinary income) 4) Cost basis.  

My wife and I make a combined household income of approximately $400,000 from our 9-5 jobs.I understand that certain tax benefits are eliminated or reduced after you cross higher ordinary income levels related to real estate.

Each two stories, 2 bed, 3 bath, private entrance, large patio / outdoor space and is just finishing up getting fully renovated.

Not sure how that could possibly qualify as an ordinary and necessary expenses to conduct your business. 

Business expenses need to be ordinary and necessary to be deductible and a mortgage interest falls under that category.Originally posted by "hjorgan":Can anyone think of a way to achieve these objectives without selling property A?

Its really just an ordinary transaction.

Then, she will pay tax on the money when she does take it out.If she takes it out now, paying the taxes, then she will still have to pay ordinary taxes on the gains, but these are at lower rate than the UBIT.

If you take the distribution, you are going to pay ordinary income taxes on it plus a 10% penalty so it would really depend on when you did this as that could amount to a significant chunk of money out of your account.

The units each have identical floor plans with 856 sq ft of living space and screened in patios.