As I begin my real estate investing journey to be able to generate passive income for the day that i want to slow down/step back, I realize the same thing that you mentioned about having to pay tax on real estate income at ordinary rates right now if I don’t show with enough “stuff” to offset that income.

@Mathew Zorn,There are various stuff that you can deduct.Rather than giving you the list, first, let me say that you can deduct expenses that meet these two criterions: Ordinary Course of BusinessNecessary in the course of businessHere is the list some of the items:1) Mileage: any mileage that is associated with the rental activity.

I find City does not want to comply and even with rules on builders side, there no money to fight .  2nd: any grade, flood, fire or density is another issue city will wave the flag on. 3rd: finding builders that have confidence to work in confine yard, things out of the ordinary. 

If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.

Here is what the IRS says:To be deductible, a business expense must be both ordinary and necessary.

@Will StahlTo be deductible, a business expense must be both ordinary and necessary.

Then at the time of distribution - account holder will be paying ordinary income tax.

At ordinary pricing they are not cheap, so I'm hoping they're good.  

Eric Armstrong assuming you have both flowing through to your personal return, they are both going to taxed the same, since they will be added to your ordinary income (taxed at your federal income tax rate).

There are two types of losses you have to keep in mind. 1) Ordinary losses that come from the ordinary income activities such as flips.