Taxable?

If you're self-employed, or a >2% shareholder, and you're trying to itemize your health insurance premiums, then you're most likely missing out on a deduction to your taxable income.The tax break that self employed individuals, or employees working at an employer that does not offer a group plan is being able to pay premiums before Social Security and Medicare (FICA). 

Taxable as income.  

In the very least, she should stop contributing to the 401k (with the exception of any minimum amount to get employer match) and contribute to a ROTH instead.The money placed into the traditional IRA is not wasted, as you can tap $10k from the IRA to purchase a first home without eating the 10% early withdrawal penalty (note that this 10k will still be added to your taxable income).Saying that you know you'll get better returns in Real Estate is too optimistic in my opinion.  

No need to examine where the proceeds went.If you don't redeposit the funds into an institution within 60 days of the indirect rollover, the entire amount is treated as a withdrawal and includable in taxable income.That 60 days passes quicker than most think. 

I over arcing question is is the 1100/month payment to my grandpa taxable income to him?

I wouldn't be overly concerned about finding an investment that generates taxable net income just so you can "use" your passive losses.Many passive investments will have a net loss for tax purposes.

A 1031 Exchange is technically a “swap” of one property for another, rather than engagement in a pure sale, which would normally constitute a taxable event.That said, finding an investor to swap properties with can be infeasible in terms of practicality.

However, you now have 10 properties to manage and they return to you a net $600.00 per month each, so you have $6,000.00 per month coming in, which is taxable income by the way.

For a business owner with $100,000 taxable annual income, the net tax savings for using an S Corporation instead of an LLC in taxes paid every year can be as high as $7,500.Holding PropertiesWhen holding properties as a cash flow investor, the LLC (or LP) is generally the better choice because an LLC has more liberal distribution rules.