Flipping houses is one of the fastest ways to build wealth in real estate but if you’re not careful, the IRS will take a bigger cut than you expected. Too many investors get blindsided by taxes after a sale, watching their hard-earned profits evaporate because they didn’t structure their business the right way.
If you think you’ll be taxed at lower capital gains rates, think again. Most flips are taxed as ordinary income, which means higher tax brackets, self-employment taxes, and a tax bill that can eat up half your profits.
So, how do you keep more of what you earn and stop giving away unnecessary money to the IRS? With the right tax strategy.
Why House Flippers Get Hit With Huge Tax Bills
Here’s what most real estate investors don’t realize when they start flipping:
- Flipping is considered a business, not an investment. Unlike rental properties that get lower capital gains tax rates, flips are treated as ordinary income—meaning higher tax brackets apply.
- Flippers often owe self-employment tax. If you’re flipping houses in your personal name, the IRS may classify you as a real estate dealer which means you’re on the hook for 3% in self-employment tax on top of your regular income tax.
- Lack of tax planning leads to unnecessary losses. Without the right business structure, bookkeeping, and expense tracking, you’ll likely overpay and miss out on major deductions.
If you’re flipping houses without a tax strategy, you’re giving the IRS a bigger slice of your profits than necessary.
How to Keep More of Your House Flipping Profits
The good news? You don’t have to accept sky-high tax bills. With the right planning, you can legally minimize taxes and keep more money in your pocket.
1. Don’t Flip in Your Personal Name – Set Up an LLC or S-Corp
Flipping houses under your personal name is one of the worst tax mistakes you can make. Not only does it expose you to unnecessary liability, but it also maximizes your tax burden.
✔ The Fix:
- LLCs provide liability protection and pass-through taxation, helping separate personal and business finances.
- S-Corps allow you to reduce self-employment tax by paying yourself a salary and taking the rest as tax-favored distributions.
✔ Example:
- Without an LLC: You flip a house for $100,000 profit and owe ordinary income tax + self-employment tax.
- With an S-Corp: Your tax liability drops significantly by structuring income more efficiently.
A small business CPA in Austin can help set up the right legal structure for your flipping business so you’re not overpaying taxes on every sale.
2. Track Every Deductible Expense – Because Every Dollar Counts
Flipping houses isn’t just about buying low and selling high. It’s also about tracking every cost so you can reduce taxable income.
✔ Deductible Expenses Include:
- Renovation costs – Materials, contractor labor, permits
- Holding costs – Property taxes, insurance, utilities
- Marketing expenses – Staging, photography, listing fees
- Business expenses – LLC fees, bookkeeping, legal costs
✔ How to Stay Organized:
- Use QuickBooks or a real estate bookkeeping system to track expenses in real-time.
- Work with an Austin accounting firm to ensure every deduction is properly documented.
A CPA firm in Austin, Texas can help make sure you’re maximizing deductions and keeping your records audit-proof.
3. Plan for Taxes – Don’t Get Blindsided
Flipping houses isn’t a once-a-year tax event. It’s an ongoing business, and you need to plan for taxes year-round.
✔ How to Avoid a Tax Shock:
- Set aside 25-35% of your profits for taxes as you go.
- Make quarterly estimated tax payments to avoid IRS penalties.
- Work with an Austin tax accountant to project your tax liability before you sell.
If you’re waiting until tax season to think about taxes, you’re already behind.
4. Use a Cost Segregation Study to Reduce Taxes
If you decide to hold a property as a rental before flipping it, a cost segregation study can accelerate depreciation and lower your tax burden.
✔ Why Cost Segregation Matters:
- Breaks down your property into components (appliances, fixtures, flooring) that can be depreciated faster.
- Lowers taxable income immediately, increasing cash flow.
- Can help offset other income from flips or rentals.
An Austin, TX accountant can analyze whether cost segregation is right for your investment strategy and guide you through the process.
5. Work With a CPA Who Specializes in Real Estate
Most CPAs understand general business taxes, but not all of them understand real estate tax law. You need someone who can help you structure your flips correctly, maximize deductions, and ensure IRS compliance.
✔ What a Real Estate CPA Can Do for You:
- Help you choose the right business structure to reduce taxes.
- Maximize deductions so you don’t overpay.
- Ensure your books are IRS-ready in case of an audit.
- Plan ahead for tax liabilities so you’re never caught off guard.
A tax advisor in Austin can help you build a tax strategy that protects your profits while keeping you fully compliant with IRS rules.
Before Your Next Flip, Let’s Build Your Tax Strategy
Flipping houses is a high-reward business, but without proper tax planning, you could be giving away half your profits to the IRS.
At Insogna CPA, we specialize in real estate tax strategy, helping house flippers:
✔ Set up the right business structure to protect profits.
✔ Track and maximize deductions so you pay less in taxes.
✔ Plan ahead for tax liabilities so you’re never caught off guard.
Before your next flip, let’s build your tax strategy. Schedule a consultation today!