Can I Claim Expenses When Flipping a House?

The costs to purchase and repair a home are not considered business expenses.

The costs to purchase and repair a home are not considered business expenses.

People who buy a house with the intention of fixing it and selling it for a profit are known as flippers. The Internal Revenue Service views a flipper as a self-employed taxpayer. The IRS allows you to write off most of your business expenses, which reduces your taxable income. Although deducting business expenses for a normal independent contractor is straightforward, claiming expenses is slightly different for a house flipper..

Capital Expenses

Because you are investing in a property with the goal to improve it, the money you pay to buy and repair the house are considered capital expenditures. The IRS allows you to deduct capital expenditures from your taxable income, but only after you sell the property. Generally, the capital expenditures will offset a majority of the profit gained from the flip and reduce your taxable income.

Office Expenses

Some expenses are deductible before you sell the house. If you run your business from a building other than your house, you can deduct all of the expenses related to maintaining the business. These expenses can include rent, heat, water, Internet and phone. You can also deduct the price of office supplies, such as pens, paper, printer ink, and business cards. If you run your business from your home, you can claim a percentage of your house expenses for your business. For example, let's say that you dedicate a 100-square-foot room for your home office. If your house contains 1,000 square feet of floor space, you can deduct 10 percent of your rent or mortgage payment and utilities as office expenses.

Vehicle Expenses

Flippers usually spend a ton of money on gas when scoping out houses, traveling to a property, or hauling supplies. The IRS lets you claim the cost to travel as a vehicle expense on your taxes. The IRS offers two methods to claim vehicle expenses: the standard mileage rate and actual expenses -- which include the cost of gas and repairs. To figure your deduction using the standard mileage rate, multiply your actual business mileage by the rate. "For 2011, the standard mileage rate is 51 cents before July 1, 2011," IRS Publication 535 notes. "The rate is 55.5 cents a mile for business miles driven after June 30, 2011, and before January 1, 2012." When you claim a deduction for actual expenses, you must have all receipts for gas and repairs on the business vehicle and use IRS Form 2106 to calculate depreciation.

Miscellaneous Expenses

Deductible expenses are not limited to those related to office and vehicle. You can also claim a wide variety of miscellaneous expenses. You can deduct property taxes, for example, or the cost of a building permit. If you use a real estate agency to scope out and buy a house, any commissions paid to the agency are deductible. You can also deduct general business expenses, such as legal and accounting fees.

About the Author

Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.

Photo Credits

  • David Sacks/Lifesize/Getty Images