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3 Tax Deduction Opportunities for Flippers

Posted by Ken Meyer on Thu, Mar 27, 2014

tax deductions for investment propertyFlipping homes can be a quick way to build up equity. While short holding periods don't always qualify you for the same tax deductions for investment property as a buy-and-hold strategy, the write offs that you do get are still valuable. It's also good to remember that you generally only pay tax when you earn a profit -- so having to pay tax is a sign of success. Nevertheless, the less of it the better. Here are three ways to cut your taxes:

Operating Expenses

If you incur operating expenses for your building while you hold it, those expenses are tax-deductible. They can include everything from utilities and property taxes to paying for maintenance services like lawn care or pool service. The interest on your loan also falls under operating expenses, as do some of the fees you pay. Other fees get amortized over the life of your loan with the unamortized balance getting written off when you flip the property and pay off the loan.


The cost of improvements that you make to the property technically isn't one of the tax deductions for investment property. A major improvement that adds value to the home isn't an expense in the IRS's eyes -- it's a capital expenditure like purchasing the property. However, you get to add the cost of your expenditure to your cost basis in the property. This reduces your taxable profit and cuts back on your capital gains liability. If you flip quickly and end up having to pay short-term capital gains tax, the savings can be significant.

Flipping Business Expenses

Flipping isn't just an investment strategy -- it's also a business, and your business expenses get added on to the tax deductions for investment property that you're already claiming. While business expenses vary, some flippers are able to write off the cost of mileage they drive, some or all of their cell phone bills and other office expenses. Investment-related travel is deductible as is a home office that you use exclusively for your business.

Tax deductions for investment property can let you keep more of the profits you earn from flipping real estate. The best way to ensure that you get every penny of tax savings that you're legally entitled to is to work with a CPA that has experience in preparing taxes for flippers. They can help you claim -- and not claim -- the right items.


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