Remeber cashflow does not equal taxable profit, you need to be knowledgeable what goes into the basis of the house you sold. 

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.

The 121 Exclusion allows you to exclude up to $250,000 in taxable gain if you are single or $500,000 if you are married ($250,000 per owner) provided that you have owned and lived in the property as your primary residence for at least 24 months out of the last 60 months (2 years out of the last 5 years). 

Part of the 1031 is you are NOT ALLOWED to take possession of the proceeds of your sale so you have to hire a company to act on your behalf, $$$ 2) You have a limited amount of time to identify and then close on the replacement property or else the initial sale becomes a taxable transaction. 3) Finding a replacement property in that timeframe may force you to overspend $$$ :-( on the next property(s) just to get in done. 4) The tax paid now is less then the associated costs of completing a 1031 and the possible cash out refi. 5) Fear of the unknown.If you want to create wealth for multi-generations you could 1031 all your small investments into one real large one (SFR and duplexes into an apartment complex) then when you pass your heirs will get the asset at its stepped up value (value on the date of your death) and could sell it at that price with no tax owed.

When I send letters I look up the Taxable value.

I know loans are not taxable income, but I'd like to avoid getting audited.

Any retirement plan would need to be kept at arm's length, and could not be combined with personal funds or sweat equity on your part.A ROBS plan would allow you to capitalize your business with prior retirement funds, but is not something we would recommend at less than about $75K as it is complex to establish and maintain.Your only option if you really need to access those funds is to take a taxable distribution and pay an additional 10% penalty for early distribution.  

Whatever profit there is in it for them will be taxable. 

Thanks, David.There's one benefit I can think of--with active business income, one can contribute into solo 401K, that amount can be deducted from business earning, so generating less net profit, hence less taxable income.Or turn this solo 401K into Roth 401K, so all profit generating afterwards are tax free.Maybe at some point, the advantage can exceed the SE taxes.Is there a way to structure it to give us the flexibility?

Those funds spent with the corresponding improvements completed will qualify for tax-deferred exchange treatment and those that aren't will be considered taxable boot.