Tax is not determined by your debt. 

That will likely determine if we are going to build a SFH and sell it or try for a duplex and keep it as a rental. 

How does the IRS and CRA look at this in that instance?

However in recent years there are some private letter rulings and case law that indicate the IRS is softening its stance here.  

. $50k K1 loss3. no tax on distribution during the entire 5 years because of $50k loss.4. at the time of sales, you still have $20k loss left5. at the sales (~2.5 times multiple), you get ~$200k back ($100k original capital + ~$100k profit).6. you owe IRS capital gain for $80k + recapture of depreciation, depending on your income, up to 20%.If you don't do anything, then you pay IRS long-term capital gains tax and it's all done.However, if you invest all the proceed of $200k in the same calendar year on a deal with the same terms, then you generate $100k paper loss effectively offsetting capital gains tax from the first deal.It seems like you will eventually run out of paper loss unless you put additional money in. however, you can defer the tax quite a bit.You can continue to do this until you die.... when you go, your kids will get this tax-deferred investment on a stepped-up basis wiping out the tax liability.Am I understanding it correctly? 

How does one determine if there’s positive cash flow if the property was bought in full with cash?

Consult a real estate agent to determine prospects to sell as is versus with improvements.

Please check with your CPA here is what the IRS says: https://www.irs.gov/businesses...

That will determine the type of home you get, but in general buy a home with multiple beds, rent them out, save, and repeat.

This is the outline for the contract that was signed:I, "SELLER", of BLANK Financial (the seller) am the owner of the property located in Pend Oreille County (assessors parcel number: BLANK).Said property is being sold via contract (the contract) to BLANK (the borrower) with a closing date that has yet to be determined.