If the place burns down (which it very well could because K&T is a big fire hazard), and the insurance company finds out you didn't disclose there was active K&T, they will certainly deny the claim.

If you need financial help, ask under the "Finance, Tax, and Legal" forum.

The high property taxes takes out most of the profits. 

The interest would be tax deductible due to interest tracing rules. 

Would the federal tax liability be $140k at year 5 for the sale, with long term capital gains (ignoring any Net Investment Income Tax)?

Very simply, large corporations pay into the tax base of that local community and that revenue is used to improve the community and make it a more attractive place for people to live.

market=Montgomery%2C%2...The lower property taxes in Alabama can help with your bottom line. 

I have 2 options:- finance the construction pre-selling the apt, and take my profits (expected to be around 700K pre-tax); or- finance the construction with a 6-7%/year loan (collateral = my house), keep the 10 units, and once the building is completed in 24 months, rent them for circa 180K/ year gross.

@Andrey ShostakA tax calculator would be nice.

Lower property taxes, affordable housing compared to LA (CA buyers are usually cash buyers because what they net from their smaller home in CA can get them a bigger home here, often covered by what they net from their CA sale), allergies (smog), and politics.