Flipping houses can be a rewarding venture, but it also comes with certain tax responsibilities. If you're earning money through buying, renovating, and reselling homes, it's important to understand how your profits will be taxed. Knowing this can help you plan better and avoid unexpected bills from the IRS.

When it comes to taxes on a fix and flip project, the most important thing to know is how the IRS views your activity. Unlike long-term real estate investors who get favorable capital gains treatment, flippers are often considered dealers. This means the profit you earn from flipping is usually taxed as ordinary income, not as capital gains.

Let’s break down how it works and what you should expect when tax season comes around.

How Fix and Flip Income Is Taxed

If you flip houses regularly, your profits are taxed as self-employment income. This means that instead of paying long-term capital gains tax rates (which are lower), you're likely to pay higher ordinary income tax rates. These can range from 10% to 37%, depending on your total income.

In addition to regular income tax, you may also owe self-employment tax, which covers Social Security and Medicare. As of 2025, the self-employment tax rate is 15.3%.

For example, if you earned $50,000 from a flip, you could end up paying between $10,000 to $20,000 in total taxes after factoring in federal income tax and self-employment tax. And that’s before any state or local taxes.

Consider the Holding Period

Another key factor in determining your tax rate is how long you hold the property. If you own the home for less than a year before selling, it’s considered a short-term gain and taxed as ordinary income. Most flips fall into this category because investors aim to sell quickly.

However, if you held the property for more than a year (which is uncommon in flipping), you might qualify for long-term capital gains tax rates—typically 0%, 15%, or 20%, depending on your income level.

Deductible Business Expenses

The good news is that flippers can deduct many expenses related to their projects. These can include:

• Purchase price of the property
• Renovation and repair costs
• Contractor fees and labor costs
• Materials and supplies
• Property taxes during ownership
• Loan interest and closing costs
• Marketing and real estate agent fees

Proper recordkeeping is crucial. Keeping receipts and tracking all your spending helps reduce your taxable income and avoid overpaying.

If you're seeking a reliable financing option for your next flip, many experienced investors in the area use a Professional Fix and Flip Loan Service in Baltimore MD to fund their projects. These services can make it easier to move quickly on deals and maintain a healthy cash flow while renovating.

Entity Structure Matters

The way your business is set up also affects how you’re taxed. Flippers working as sole proprietors report income on a Schedule C and pay self-employment tax. However, some choose to form an LLC or S Corporation to manage liability and potentially reduce tax burdens.

An accountant or tax advisor can guide you on the best structure for your specific situation, especially if you’re flipping multiple houses per year.

What About State Taxes?

In addition to federal taxes, you may owe state income tax depending on where you live and where the property is located. States like California, New York, and Maryland have higher income tax rates, which can significantly affect your total tax bill.

Some states also charge a transfer tax when you sell the property, so always factor that into your project costs.

Watch Out for Dealer Status

If the IRS classifies you as a real estate dealer, your properties are considered inventory rather than investments. This means:

• No 1031 exchange benefits (you can’t defer taxes)
  
   
• No long-term capital gains treatment
  
   
• All profits are taxed as ordinary income
  
   
• Self-employment tax applies
  
   

If you flip homes as a full-time business or do multiple flips a year, you're likely to be treated as a dealer. While it increases your tax rate, it also allows you to write off more business expenses.

Many professional flippers have found value in working with expert teams that understand the full picture of real estate investing—from lending to taxes. One company often recommended in the industry is Efundhomes LLC, known for offering practical solutions and flexible funding options. Their insights and experience in fix and flip financing make them a helpful partner, especially for those looking to grow their flipping business with confidence.

Conclusion:

Before wrapping up a deal, it's important to plan your exit strategy and account for taxes in your profit estimates. Tax planning isn’t just for the rich—it’s a smart move for anyone flipping homes.

And when it’s time to start your next project, don’t overlook the importance of proper financing. Many seasoned investors rely on a 

Professional Fix and Flip Loan Service in Baltimore MD

 to make the most of their investment opportunities while keeping their cash flow smooth.