Can I Claim Expenses When Flipping a House?
House flipping is the act of purchasing residential property, adding to its value through renovations and repairs and quickly selling it at a profit. Entrepreneurs may work part- or full-time in such ventures. In the process of making and collecting on such investments, house flippers can deduct various business-related expenses.
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Business Expenses vs. Capital Expenses
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The Internal Revenue Service allows house flippers to deduct business expenses related to their profession from their taxable income. However, the funds house flippers use to purchase properties and make improvements on them are not business expenses: they are capital expenditures. A capital expenditure is an investment that a business or investor makes with the direct intention of seeing the value of that asset increase later. While house flippers can deduct the capital expenses related to purchasing and improving residential properties, they cannot do so until they sell the property.
Vehicle Expenses
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Since house flippers tend to spend a lot of their time driving, they can deduct vehicle and transportation costs that relate to their business practices. When flippers purchase business-specific vehicles or use their personal vehicles to travel to investment properties, this is a deductible expense. To deduct expenses related to the use of a personal vehicle, keep detailed travel records and make your claim based on the Internal Revenue Service's standard mileage rates.
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Office Expenses
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If you pay to rent an office space for your business, the rental payments you make are deductible business expenses, as are utilities and whatever you pay for office supplies. If you run your business from your home, you can claim a deduction for the use of your home as an office if you establish a specific room as an office space. This home office space must be exclusively for business.
Miscellaneous Business Expenses
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Various other miscellaneous expenses can become tax deductions for house flippers. For instance, in buying and selling residential properties, you may incur various taxes and government fees. These taxes and fees are deductible. If you work through a real estate agent, any real estate commissions you must pay are deductible expenses as well. You may also deduct costs common to businesses in general, such as accounting fees and legal fees.
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