How are taxes calculated when flipping a house one time?

I'm a tax preparer with a question about a client's situation. I have a client who recently flipped a single house (bought it, fixed it up, and sold it for profit). I'm trying to determine the correct way to report this on his tax return. Since he's not in the real estate business and this is literally the only house he's ever flipped (with no plans to do more), I don't think Schedule C is appropriate here. I'm wondering if this gain should be reported on Form 4797 instead? And if so, would I need to worry about depreciation recapture? My understanding is that you can't take depreciation on properties being flipped, and my client never claimed any depreciation on this property anyway. Any guidance on the proper tax treatment for a one-time house flip would be really appreciated! I want to make sure I'm filing this correctly.

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19 comments

Kaylee Cook

•8M

You're on the right track! For a one-time flip that isn't part of a regular business activity, this would typically be reported as a capital gain rather than business income on Schedule C. Form 4797 would be appropriate if the property was used in a trade or business, but for a one-time flip by someone not in the real estate business, you'll want to use Schedule D and Form 8949 to report the capital gain. Since this was held as investment property rather than business property, that's the appropriate place. You're also correct about depreciation - since your client never claimed depreciation (and wasn't eligible to since this was a property being improved for resale, not a rental), there's no depreciation recapture to worry about. The gain would simply be the selling price minus (purchase price + improvement costs + selling expenses).

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Kaylee Cook

•8M

You're absolutely right about the holding period - if they owned it for less than a year, it would be a short-term capital gain reported on Schedule D and Form 8949, but taxed at ordinary income rates. If held longer than a year, it would be a long-term capital gain with preferential tax rates. As for determining if someone is "in the business" of flipping, the IRS looks at several factors: frequency of transactions, amount of profit, time and effort devoted to the activity, whether they hold themselves out as being in that business, and whether there's a profit motive. For a true one-time flip with no plans to continue, it's pretty clear this isn't a business, but more of an investment activity.

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Lara Woods

•8M

It actually did address the self-employment tax question. Based on my specific situation (just one flip), it showed me documentation about how single transactions typically don't constitute a "trade or business" requiring self-employment tax. But your situation might be different since you also have a contractor business - it might be seen as an extension of that. For non-digital receipts, the system handled those perfectly. I just took photos of all my handwritten receipts with my phone and uploaded them. It extracted the key information and organized everything by category. It even flagged which receipts might need additional documentation in case of an audit.

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Molly Chambers

•8M

Just wanted to follow up about my experience with taxr.ai after I tried it. I was impressed with how it analyzed all my renovation expenses and separated them into different categories (capital improvements vs. repairs). It even caught that some of my labor costs should be allocated differently than I had initially thought. The documentation it provided gave me confidence about how to properly report everything on my taxes. The best part was that I didn't have to sort through a bunch of IRS publications to figure it all out. Really simplified what I thought would be a tax nightmare!

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Ian Armstrong

•8M

After preparing taxes for people who've flipped houses, I've learned that talking directly to the IRS is sometimes necessary, especially if you're unsure about classification. I tried calling them for weeks about a client's situation similar to this one but couldn't get through. Then I found https://claimyr.com which got me connected to an IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent confirmed that one-time flips should generally be reported as capital transactions, not business income, unless there are specific circumstances indicating a business enterprise.

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Ian Armstrong

•8M

It's not a priority line - it uses some kind of technology that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call back so you don't have to sit there listening to hold music for hours. No special treatment, just automation handling the waiting part. Regarding complex questions, I had the same concern initially. What I found is that it depends on the agent you get. My experience was actually quite positive - I got an agent who clearly understood the distinction between one-time investment activities versus regular business operations. They provided specific guidance about using Schedule D versus Schedule C and referenced the relevant sections of the tax code. The key is being very prepared with specific questions when they call you back.

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Marcus Patterson

•8M

I was completely skeptical about Claimyr but decided to try it anyway after struggling for weeks to get through to the IRS. Holy crap it actually worked! Got a call back within 30 minutes with an actual IRS agent on the line. I explained my situation with the house flip and the agent was super helpful - confirmed that for a single flip, it should be treated as a capital asset transaction on Schedule D, not Schedule C. They even emailed me some specific guidance documents afterward. Saved me hours of research and uncertainty. I'm honestly shocked this worked so well.

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Lydia Bailey

•8M

I did something similar a few years ago and reported it on Schedule D as a capital gain. The biggest thing that helped me was keeping meticulous records of all improvement costs to increase my basis. Don't forget to include: - Acquisition costs (purchase price, closing costs, transfer taxes) - Materials for renovations - Labor costs for contractors - Permit fees and inspection costs - Utility bills during renovation period - Selling costs (commissions, closing costs) All of these get added to your basis which reduces the taxable gain.

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Lydia Bailey

•8M

You can include utility bills during the renovation period if the property was vacant and the utilities were necessary for the renovation work. For example, electricity needed for power tools or heating needed for paint to dry properly. You're right that generally utility bills are operating expenses, but during active renovation of an unoccupied property being prepared for sale, they can be considered part of the improvement costs. It's a bit of a gray area, but I've had no issues including reasonable utility costs during active renovation periods. Just make sure you document why they were necessary for the improvements.

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GalacticGuardian

•5M

Great question! As a fellow tax professional, I can confirm that you're absolutely right to avoid Schedule C for a one-time flip. The key test is whether this constitutes a "trade or business" - and a single transaction by someone not regularly engaged in real estate typically doesn't meet that threshold. For reporting, you'll want to use Schedule D and Form 8949 to report this as a capital gain/loss. The holding period will determine if it's short-term (less than 1 year) or long-term (more than 1 year), which affects the tax rate. Make sure to properly calculate the adjusted basis by including: - Original purchase price - Closing costs on purchase - All capital improvements (not repairs) - Selling expenses (commissions, closing costs, etc.) Since your client never claimed depreciation (and couldn't on a flip property anyway), there's no depreciation recapture to worry about. The gain calculation is simply: Sales price - Adjusted basis = Capital gain. One thing to watch out for - if the IRS later determines this was part of a business activity, they could reclassify it and assess self-employment tax. But for a true one-time flip with no business intent, capital gains treatment is appropriate.

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