Income from fix and flips is ordinary income and subject to ordinary income tax and SET.

I have done this something like 3 times.While your waiting to sell them back the house, you are holding the house and possible converting a (short term gain, or ordinary income) into a long term gain.AS far as the foundation and inspector goes, most don't have any clue what they are doing. 

Material participation or active participation comes into play when its time to net your rental loss ( passive loss) with your other ordinary income ( w-2) Generall rental loss cannot offset other ordinary income, but there are two exceptions:1) You can net rental loss with Ordinary income if you are RE pro. 

We have a 10x10 patio on back facing court yard

An assignment will be something out of the ordinary.

I would really like to add a deck or patio in the back.

Hi Steve,Thanks for the response, if anything it's good to know that what I'm facing isn't too out of the ordinary.

Hi,We own a few single-family properties in the Phoenix area and they are all managed by the same property manager for many years now.Since these houses aged a little bit and have normal wear and tear it's time to make some larger repairs, such as replacing rotted siding panels, fascia/soffit boards,  support columns in the patio, fixture replacements etc...For years our property manager pretty much handled all of this, but it seems to me that the quotes we've been getting recently are overblown.

If so, then I am guessing that the property holding LLCs claim a deduction for management fees, which are in turn reported on Schedule C as self-employment income.If my assumptions are correct, I wonder why you are converting passive rental income that is only taxed as ordinary income, into active self-employment income that is subject to self-employment income taxes in addition to the ordinary income taxes.   

Worth the couple hundred bucks to ensure you're covered.if what you have is a 2nd mortgage, the 'gain' may be considered interest and be akin to ordinary income.