What Expenses Can I Deduct When Flipping a House?

The expenses you can deduct when flipping a house fall into two buckets: costs that become part of the property’s cost and reduce your taxable gain at sale, and costs you deduct in the current year as business expenses. Purchase price, most closing costs, and every dollar of renovation work go into the first bucket, called cost of goods sold. Property taxes, insurance, loan interest, utilities during the hold, agent commissions, mileage, tools, marketing, and your accountant’s fee go into the second. Both buckets reduce what you owe. They just get there through different lines on Schedule C.

Why Dealer Status Shapes Every Deduction

The IRS treats house flippers as dealers in real property, not investors. 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 to renovate and resell is inventory. That single classification decision changes how everything else works.

You report profit on Schedule C at ordinary income rates, not on Schedule D at long-term capital gains rates. Net profit is subject to self-employment tax of 15.3% on the first $184,500 of net earnings for 2026, with the 2.9% Medicare portion continuing above that and an additional 0.9% Medicare surtax on self-employment income above $200,000. Like-kind exchanges under Section 1031 are off the table because that provision applies only to property held for investment or productive use, not to inventory.²

The upside is broad access to business deductions. Almost any ordinary and necessary cost of running the flip is deductible somewhere on Schedule C. The question is where.

Purchase Price, Closing Costs, and Improvements

These are the biggest numbers on any flip, and they all flow through cost of goods sold. You don’t deduct them as line-item expenses; they reduce your taxable gain when the property sells.

Closing Costs That Become Part of the Property’s Cost

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

Legal fees for title search and preparation of the sales contract and deed
Owner’s title insurance premium
Any transfer tax you pay as the buyer
Recording fees
Survey costs

Loan-related charges are treated differently. Loan origination fees, discount points, and lender-required appraisal fees are not part of the property’s cost. They’re amortized over the life of the loan as a business expense, and any unamortized balance can be deducted in the year you pay off the loan (typically when the flip sells).³

Improvement Costs

Work that makes the property better than it was, restores it to a like-new condition, or adapts it to a new use is an improvement.⁴ Kitchen remodels, new roofs, HVAC replacements, added bathrooms, finished basements, rewiring: all of it, including labor, materials, permits, and professional design fees, goes into cost of goods sold. You recover these costs at sale.

Repairs You Can Deduct Now

Work that merely keeps the property in its existing operating condition is a repair, and repairs are deducted in the current year. Fixing a leaky faucet, patching drywall, replacing a broken window pane, clearing a clogged drain, touch-up painting: these are the classic examples.

The line matters. An improvement waits until sale to reduce your tax. A repair reduces income right now. For flippers, the trap is scope. Replacing one section of hallway flooring reads as a repair. Replacing all the flooring throughout the house as part of a renovation reads as an improvement, even if each room could theoretically stand alone. Auditors look at the overall project, not the individual task.

The De Minimis Safe Harbor

The IRS offers a safe harbor letting you deduct individual items costing $2,500 or less per invoice ($5,000 with audited financial statements) without running the betterment-restoration-adaptation analysis.⁴ A new garbage disposal, a replacement light fixture, a modest appliance: all deductible under the safe harbor. You must elect it on your return each year by attaching a statement, and per-item invoices are required.

Holding Costs While You Own the Property

Costs of holding the house through renovation and marketing are deducted as operating expenses in Part II of Schedule C for the year you pay them:²

Property taxes assessed during your ownership
Hazard insurance, general liability, and builder’s risk coverage
Interest on the acquisition loan, construction loan, or hard-money loan
Utilities during renovation and showing periods

When Section 263A Forces You to Capitalize Instead

There is a boundary here that catches flippers off guard. Section 263A, the uniform capitalization rules, can require you to fold carrying costs like interest and property taxes into the property’s cost rather than deducting them currently. The rules apply to real property acquired for resale when the production period exceeds two years or the estimated production cost exceeds $200,000. Fast turnarounds usually stay clear. Longer holds with heavy renovation budgets can be pulled in, meaning carrying costs you expected to deduct this year get recovered only at sale.

General Business and Administrative Costs

Overhead that isn’t tied to a specific property is deductible as ordinary and necessary business expense on Schedule C.

Professional Fees and Licensing

Accountant fees for bookkeeping and business tax preparation go on Schedule C, line 17.² Attorney fees for general business advice or entity formation, business licenses, permit fees for operating the business, professional trade association dues, and continuing education that sharpens skills you already use in the business all qualify.

Marketing, Office, and Home Office

A business website, printed materials, and advertising to source distressed properties are deductible marketing costs. Office supplies and postage go on line 18.² If you use a dedicated space in your home exclusively and regularly for managing the flipping business, you can claim the home office deduction using the regular method on Form 8829, allocating actual expenses by square footage, or the simplified method.⁵

Vehicle Mileage

Driving to job sites, meeting contractors, picking up materials, and scouting properties is deductible business use. You can use the standard mileage rate or actual vehicle expenses, but not both. The IRS standard mileage rate for 2026 is 72.5 cents per mile.⁶ Parking and tolls are separately deductible under either method.⁷ Keep a contemporaneous log with date, destination, purpose, and odometer readings. Undocumented mileage is one of the easiest deductions to lose in an audit.

Tools, Equipment, and Vehicles

Two provisions let you write off equipment fast instead of depreciating it over years.

Section 179 lets you deduct the full cost of qualifying business equipment in the year you place it in service. For 2026, the maximum deduction is $2,560,000, phasing out beginning at $4,090,000 in total equipment purchases. Tools, trailers, certain software, and office equipment all qualify. Heavy vehicles are a special case: SUVs and trucks with a gross vehicle weight rating above 6,000 pounds but no more than 14,000 pounds are eligible, with the deduction capped at roughly $32,000 for 2026. Vehicles above 14,000 pounds aren’t subject to that cap.

Bonus depreciation is back at 100% under the One Big Beautiful Bill Act for qualifying property acquired and placed in service after January 19, 2025. Equipment bought in 2026 can be written off entirely in the first year. Property acquired before January 20, 2025 but placed in service in 2026 gets only 20% bonus, so the acquisition date matters.

Selling Costs

Costs of closing the sale are deducted as business expenses on Schedule C, not netted against the sales price the way an investor would handle them on Schedule D.² Watch for:

Listing and buyer’s agent commissions
Staging (furniture rental and styling)
Listing photos, signage, and property-specific advertising
Termite, structural, and other inspections required by the sales contract
Buyer’s title insurance premium when you pay it as seller
Closing costs or loan points you agree to cover for the buyer

On a $300,000 sale, a 5% total commission alone is $15,000 in deductible expense. Missing these is common and expensive.

The Qualified Business Income Deduction

Section 199A, the qualified business income deduction, 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 flippers, this applies to the net profit from your Schedule C business. Below the income thresholds, the calculation is a clean 20% of QBI. For 2026, the 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 who don’t pay themselves W-2 wages can see the deduction reduced or eliminated at higher income levels, which is often the trigger for a conversation about entity structure.

Payments to Subcontractors and the 1099-NEC Requirement

Payments to contractors, handymen, and unincorporated subcontractors are deductible as part of your project costs. If you pay any individual $600 or more during the year, you also have to file a Form 1099-NEC.⁹ Flippers routinely overlook this, and the penalties stack:

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

Five or six subs on a project turns into real money quickly.¹⁰ Collect a W-9 from every contractor before the first check clears. Payments to corporations are generally exempt from 1099 reporting; payments to LLCs taxed as sole proprietorships or partnerships are not.

When a Flip Loses Money

Dealer status has one clear advantage on the loss side. Because inventory losses are ordinary, a loss on a failed flip fully offsets your other income (wages, interest, a spouse’s salary) rather than being trapped by the $3,000 annual capital loss cap that applies to investors.²

Two limits apply. The excess business loss rule caps 2026 deductible business losses at $256,000 for single filers and $512,000 for joint filers; anything above that converts into a net operating loss carried forward on Form 461. The at-risk rules cap the deductible loss at the amount you actually have at risk in the business, which for most flippers who guarantee their own loans and put in their own capital is not a practical constraint. A Schedule C loss reduces your adjusted gross income, but it doesn’t generate a self-employment tax benefit, because SE tax applies only 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