As a trade or business, however, income from the activity could be subject to tax on Unrelated Business Taxable Income.  

He is literally a "money under the pillow" guy and doesn't know that all that depreciation is taxable income.

As such, you will need to have the property formally appraised to set the value of that taxable distribution.

We plan on considering the side work (GC and design stuff) to be taxable wage income but that is minimal compared to the profit we receive from flipping.

We plan on considering the side work (GC and design stuff) to be taxable wage income but that is minimal compared to the profit we receive from flipping.

If the partnership (which is what the LLC will be treated as for US tax purposes) has a $5,000 loss when its taxable income is calculated, then assuming a straight 50/50 partnership across the board each partner will report a $2,500 loss on his or her individual tax return assuming you have sufficient tax basis in your respective partnership interests (something that you will need to calculate).

@Brandon ReffettKiyosaki and many others who repeat this phrase are full of it, basically.There're many investors who highly leverage their properties (meaning huge loans) and show zero or almost zero taxable income, due to accelerated depreciation and other tax strategies.

For example, if you received (which is unlikely) a formal note that said "I will pay you $41k when I sell" - you incurred taxable income at that time, not now.

Hi Jimmy, Depreciation recapture would be taxable upon sale (unless you do a 1031 Exchange on the portion that you rented out).

Realize too, that if you show expenses to reduce the taxable income, you won't have the income necessary to finance new projects and may create a liability for refinacing the property you hold.