Flipping houses can be a lucrative and fun endeavor.
The most critical aspect of flipping houses is estimating your expenses — such as upgrading the kitchen, opening up the floor plan, maybe even converting a garage into a bedroom — so that you can estimate your profit.
There is one expense that is often overlooked: taxes.
That’s right: taxes on flipping houses.
How are you taxed on flipping houses?
We’ve got you covered.
Keep reading to learn everything you need to know about taxes on flipping houses.
How are You Taxed When Flipping Houses in 2025?
Taxes on flipping houses can get complicated for beginner and seasoned investors alike.
Taxes will depend on:
- Your tax status
- Capital gains
- Self employment taxes
We’ll look at each one in depth next.
Your Tax Status
Your taxes on flipping houses will depend on whether the IRS considers you a real estate investor or a real estate dealer.
It’s possible for house flippers to fit into either category, depending on how you manage your properties.
Real Estate Investors
Real estate investors purchase properties and hold them for at least a year.
They don’t actively promote the property for sale immediately after purchase.
As a house flipper, you might fall into this category if you improve and sell a property you’ve already owned for an extensive period of time.
If you’re considered a real estate investor, your properties are treated as assets, and you’ll need to pay capital gains taxes when you sell them.
However, you won’t need to pay any income taxes on your house flipping profits.
Real Estate Dealers
On the other hand, real estate dealers purchase properties with the intent to sell them.
They buy and sell real estate as a business and typically flip multiple houses each year.
Most career real estate flippers will fall into this category.
When you’re a real estate dealer, the IRS treats your house flipping operations as a business.
The profit from your house flips is treated as normal self-employment income.
Your properties are treated as inventory rather than assets, so you don’t pay capital gains taxes.
If you’re not sure which category you fall into, work with a tax professional to accurately evaluate your situation.
Capital Gains Taxes
If you hold onto a property for over a year while flipping it and are classified as an investor, you’ll need to pay capital gains taxes on the profits when you sell the property.
You’ll pay 0, 15, or 20 percent, depending on your tax bracket.
Self-Employment Taxes
As a real estate dealer, the profit from your house flipping projects will be taxed as normal self-employment income.
This means you will pay standard income tax rates based on your tax bracket.
You’ll also need to pay self-employment tax, since you are running your own business.
Federal self-employment tax is an 15.3%, on top of your standard income tax.
What’s the IRS Publication for Flipping Houses?
If you’re classed as a real estate dealer, you’ll fill out a Schedule C 1040 form to report your house flipping income.
This form is for reporting income from your business as a sole proprietor.
If you’re classed as a real estate investor, you’ll fill out a Schedule D 1040 form to report your house flipping income and pay capital gains taxes.
If you file your taxes online, your tax software program will include these forms.
However, it can be helpful to work with a tax professional to make sure that everything is correct and that all possible deductions have been accounted for.
How to Calculate Taxes on Flipping Houses Step-by-Step
Here’s a step-by-step look at how to calculate your taxes for house-flipping projects.
If you’re a real estate dealer, follow these steps:
- Add up your total income from flipping houses for the year.
- Add up your deductible expenses for the year.
- Subtract your deductible expenses from your total income.
- Determine your income tax rates for the year, based on your tax bracket. Keep in mind that tax brackets are progressive. For example, if you made $75,000 flipping houses, you would pay a 10% tax on the first $11,000, a 12% tax from $11,001 to $44,725, and 22% on the remaining $30,275.
- Add a self-employment tax of 15.3% on your entire income.
If you’re a real estate investor, follow these steps:
- Add up your total taxable income to determine which tax bracket you are in. This will not include your profit from flipping houses, but will include your income from other sources. Based on your tax bracket, you’ll pay either 0, 15, or 20% in capital gains taxes.
- Add up your profit from flipping houses for the year.
- Calculate your capital gains by subtracting the amount you initially paid for the property from the amount you sold it for. For example, if you bought a property for $250,000, flipped it, and sold it for $750,000, your capital gains on that property would be $500,000.
- Use the capital gains tax rate you determined earlier to calculate exactly how much you’ll pay. For example, if your capital gains were $500,000 and you are taxed at a rate of 15%, you’ll pay $75,000 in taxes.
Lowering Your House Flipping Tax Burden
There are several ways to reduce your tax burden, including:
- Taking tax deductions: If you’re classed as a real estate dealer, you can deduct business-related expenses from your taxable income. This includes everything from materials used on your properties to office expenses for running your business.
- Waiting to sell: If you hold your property for over a year before selling it, you could be classed as an investor rather than a dealer, which will result in more favorable tax rates.
- Live in the property: If you live in the property you’re flipping for at least two years, you’ll get even more tax breaks when you finally sell.
- Make a 1031 exchange: If you’re planning to sell one property and buy another shortly thereafter, you may qualify for a 1031 exchange. This allows you to defer capital gains taxes on the first property. However, 1031 exchanges have very strict rules, so not all sales will qualify.
- Form a corporation: Opening an LLC for your house flipping business can help you get more favorable tax rates.
The Bottom Line: Taxes on Flipping Houses
It’s easy to forget about the added expense of taxes when you’re flipping houses.
Use this guide to help you prep for your taxes this year and beyond.
Most importantly, use these tips to reduce your future tax burden so that you can save money — and re-invest it back into your real estate business.
