← Back to BlogMay 202611 minDan White
House Flipping Taxes Explained: What You Owe and How to Reduce It
House flipping is taxed like a business, not an investment. Your profits are ordinary income — not capital gains — and self-employment tax applies on top of that. Understanding this before you start saves expensive surprises at tax time.
Market Context
Live Market Data
Washington, DC Housing Market
Cool Market
Data through Mar 2026
Median Sale Price
$590,000
+0.8% YoY
Median Days on Market
44 days
lower = faster market
Sale-to-List Ratio
99.7%
buyers' market
Homes Sold
4,457
last reported month
Source: Redfin Data Center. Updated monthly. Data reflects Washington, DC residential sales.
redfin.comYou Are a Dealer, Not an Investor
The IRS classifies active house flippers as dealers in real estate. This means your flip profits are treated as ordinary business income — taxed at your marginal rate (up to 37% federal) plus self-employment tax (15.3% on the first $168,600 in 2026). Long-term capital gains rates (0–20%) do not apply to flips held less than one year, and even properties held longer are often still dealer property if flipping is your primary business.
What Your Taxable Gain Includes
Sale price minus your cost basis. Cost basis includes: purchase price, buying closing costs, all renovation costs (materials and labor), permit fees, inspection fees, and any capital improvements. Track every dollar — it all reduces your taxable gain.
What's Deductible as a Business Expense
- Hard money interest and points (period you held the property)
- Property taxes during holding period
- Insurance during holding period
- Business operating costs: phone, software, mileage, office
- Professional fees: attorney, CPA, title
- Marketing and lead generation costs
Factor Tax Into Your Deal Analysis
FreeDealCalc runs after-tax profit projections so you see your real net, not just gross profit. Free with Freddie.
Run My After-Tax Analysis Free →Tax Reduction Strategies
- Operate as an S-Corp: Can reduce self-employment tax on profits above a reasonable salary
- Maximize deductible business expenses: Every legitimate business cost reduces taxable income
- Hold one property as a rental: Rental income is not subject to SE tax; long-term holds qualify for capital gains rates
- Work with a CPA who specializes in real estate investors: The tax code has legitimate strategies that generalist CPAs miss
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been investing in real estate for 20+ years.