What Expenses Can I Deduct When Flipping a House?

When you flip a house, you can deduct almost every cost connected to the project, but the IRS splits those costs into two buckets that behave very differently at tax time. Purchase and renovation costs go into your cost of goods sold and reduce your taxable profit when the house sells. Holding costs, selling costs, and the overhead of running your flipping business are deducted as operating expenses in the year you pay them. Knowing which bucket each receipt belongs in is the whole game, and it’s where most of the tax deductions for flipping houses are won or lost.

Why the IRS Treats You as a Dealer, Not an Investor

The tax code excludes from the definition of a capital asset any property held primarily for sale to customers in the ordinary course of a trade or business.¹ A house you buy, renovate, and resell quickly is inventory. That makes you a dealer. Your profit is ordinary income reported on Schedule C, you owe self-employment tax on net profit, and you can’t use a Section 1031 like-kind exchange to defer gain.²

The upside of dealer status is that it opens up the full menu of ordinary and necessary business deductions, and losses are treated as ordinary losses rather than capital losses capped at $3,000 a year.

Costs That Go Into the Property (Cost of Goods Sold)

Everything you spend to buy and improve the house is capitalized into the property’s cost and recovered through cost of goods sold when the flip closes. These aren’t current-year deductions; they shrink the taxable gain at sale.

Buying Costs That Become Part of the Property

IRS Publication 551 identifies the settlement charges that get added to the property’s cost:³

Legal fees for the title search, sales contract, and deed preparation
The owner’s title insurance premium
Transfer taxes you pay as the buyer
Recording fees for the deed
Survey costs

Watch out for the loan-related charges at closing. Publication 551 specifically excludes loan origination fees, discount points, and lender-required appraisal fees from the property’s cost.³ Those are amortized over the life of the loan as a business expense, and when you pay the loan off at sale, any unamortized balance is deductible that year.

Renovation and Improvement Spending

Any work that betters the property, restores it to a like-new condition, or adapts it to a new use is an improvement and goes into cost of goods sold.⁴ This covers the heart of the renovation budget: kitchen and bath remodels, new roofing, HVAC replacement, rewiring, finished basements, additions. All labor, materials, permit fees, and professional services tied to those projects get capitalized into the property’s cost.

Repairs You Can Deduct in the Current Year

Work that merely keeps the house in its current operating condition is a repair, deductible in the year you pay for it. Patching drywall, fixing a leaky faucet, replacing a broken windowpane, clearing a drain, touch-up painting. The IRS uses a betterment, restoration, or adaptation test to tell the two apart.⁴

Context matters for flippers. Replacing a damaged section of flooring in one hallway reads as a repair. Replacing all the flooring in the house during a top-to-bottom renovation reads as part of an improvement, and auditors look at the overall scope of work when they decide. If a small fix is folded into a larger renovation project, expect it to follow the improvement into cost of goods sold.

The De Minimis Safe Harbor

There’s a shortcut for small items. The de minimis safe harbor lets you deduct individual items costing $2,500 or less per invoice (or $5,000 with audited financial statements) without applying the betterment-restoration-adaptation analysis.⁴ A new garbage disposal, a replacement light fixture, a modest appliance. You have to elect the safe harbor each year by attaching a statement to your return, and you need invoices showing the per-item cost.

Holding Costs While You Own the Property

Ongoing costs during the renovation and marketing period are generally deductible in the current year as operating expenses on Schedule C:²

Property taxes assessed while you own the flip
Hazard insurance, general liability, and builder’s risk coverage
Interest on acquisition, construction, or hard-money loans
Utilities (electricity, water, gas) during renovation and showings

When Section 263A Forces You to Capitalize Instead

The uniform capitalization rules under Section 263A can override that current-year treatment. They apply to real property acquired for resale when the production period exceeds two years or estimated production costs exceed $200,000. On flips that trigger the rule, carrying costs like interest and property taxes that would otherwise be immediately deductible get folded into cost of goods sold and only come off at sale. Short, high-turnover flips stay out of its reach; drawn-out renovations with substantial budgets do not.

Selling Expenses

Costs of closing the sale are deductible as business expenses on Schedule C. For a dealer, they’re operating expenses that reduce net profit, not sale-price adjustments the way they’d be for an investor.²

Listing and buyer’s agent commissions
Staging, including furniture rental and styling
Listing photos, signage, and property-specific advertising
Termite, structural, or other inspections required by the contract
The buyer’s title insurance premium if you pay it as the seller
Any closing costs or loan points you cover for the buyer as a concession

On a $300,000 sale with a 5% total commission, that’s $15,000 in deductions that leaves money on the table if it isn’t tracked.

Business Overhead and Administrative Costs

General expenses of running the flipping business, not tied to any one property, are deductible on Schedule C as ordinary and necessary business costs.

Professional Fees, Licensing, and Education

Accounting and tax-prep fees for the business go on Schedule C, line 17.² Attorney fees for general business advice or entity formation are deductible. So are business licenses, permit fees for operating your business, trade organization dues, and continuing education that sharpens skills you already use (building codes, project management, and similar).

Marketing, Office, and Home Office

Advertising that promotes the overall business is deductible: a business website, printed materials, direct-mail campaigns looking for distressed properties. Office supplies and postage land on line 18.² If you use a dedicated space in your home exclusively and regularly for the business, you can take the home office deduction using either Form 8829 and actual expenses or the simplified square-footage method.⁵

Vehicle and Mileage

Driving to job sites, meeting contractors, picking up materials, and scouting acquisitions all count as deductible business transportation. You can use either the standard mileage rate or actual vehicle expenses, not both. The 2026 standard rate is 72.5 cents per mile.⁶ Parking and tolls are deductible under either method.⁷

Keep a contemporaneous mileage log with date, destination, purpose, and odometer readings. Undocumented mileage is one of the easiest deductions to lose in an audit.

Equipment: Section 179 and Bonus Depreciation

Tools, trailers, computers, and other business equipment can usually be written off in full the year you place them in service rather than depreciated over several years.

Section 179 lets you expense qualifying business equipment up to a $2,560,000 maximum for 2026, with phase-out starting at $4,090,000 in total purchases. Heavy SUVs and trucks with a gross vehicle weight rating above 6,000 pounds but no more than 14,000 pounds qualify, but the deduction is capped at roughly $32,000 for 2026. Vehicles above 14,000 pounds, like a large work truck, aren’t subject to that cap.

The One Big Beautiful Bill Act restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. For equipment you buy in 2026, you can write off the full cost in year one, whether new or used. Property acquired before January 20, 2025, but not placed in service until 2026 is limited to a 20% bonus rate, so acquisition date matters.

The Qualified Business Income Deduction

The Section 199A qualified business income deduction, originally scheduled to expire after 2025, was made permanent by the One Big Beautiful Bill Act. Eligible sole proprietors, partnerships, and S corporation shareholders can deduct up to 20% of qualified business income.⁸

For a flipper, QBI is your Schedule C net profit. Below the income thresholds the deduction is a simple 20% of QBI. For 2026, the full deduction phases out between $201,750 and $276,750 for single filers and between $403,500 and $553,500 for joint filers. Above those ceilings, the deduction is limited by W-2 wages paid by the business and the unadjusted basis of qualified property. Solo flippers rarely pay themselves W-2 wages, which can sharply shrink or eliminate QBI at higher income levels, and that is worth a conversation about entity structure with a tax professional.

1099-NEC Filings for Your Subcontractors

If you pay any individual, handyman, or unincorporated subcontractor $600 or more during the year, you have to file a Form 1099-NEC reporting the payment.⁹ This is deduction-adjacent, because the IRS can disallow labor deductions when the required 1099s weren’t filed, and the penalties stack by lateness:¹⁰

Up to 30 days late: $60 per form
31 days late through August 1: $130 per form
After August 1 or never filed: $340 per form
Intentional disregard: $680 per form

Collect a W-9 from every contractor before the first check goes out. Payments to corporations are generally exempt. Payments to LLCs taxed as sole proprietorships or partnerships are not.

When a Flip Loses Money

Dealer status pays off when a flip goes sideways. Because the property is inventory and income is ordinary, a loss on the sale is an ordinary business loss on Schedule C. It offsets wages, interest, a spouse’s salary, or any other income in full, rather than being capped at $3,000 like a capital loss.²

Two limitations apply. The excess business loss limitation, reported on Form 461, converts net business losses above $256,000 (single) or $512,000 (joint) for 2026 into a net operating loss carried forward to future years. The at-risk rules cap your deductible loss at the amount you actually have at risk; for flippers who personally guarantee their loans and put up their own capital, this is usually a non-issue.

A Schedule C loss reduces adjusted gross income and lowers tax on income from other sources, but it generates no self-employment tax benefit. SE tax only applies to net profit.

1
Office of the Law Revision Counsel. 26 U.S. Code 1221 – Capital Asset Defined
2
Internal Revenue Service. Instructions for Schedule C (Form 1040) (2025)
3
Internal Revenue Service. Publication 551, Basis of Assets
4
Internal Revenue Service. Tangible Property Final Regulations
5
Internal Revenue Service. Topic No. 509, Business Use of Home
6
Internal Revenue Service. 2026 Standard Mileage Rates
7
Internal Revenue Service. Topic No. 510, Business Use of Car
8
Internal Revenue Service. Qualified Business Income Deduction
9
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
10
Internal Revenue Service. Information Return Penalties