Real Estate Flip (one-off) on Schedule-D: Can I deduct utilities, loan interest, or add them to basis?

The distinction between a Schedule D flip and a business flip is important, and it sounds like you're on the right track. For a one-time flip reported on Schedule D, you can add most costs to your basis, but not all expenses qualify. For your specific questions: Loan interest on acquisition debt or improvement loans can generally be added to your basis. This is because the interest is considered part of your cost of acquisition and improvement. Utilities and lawn maintenance during the renovation period can also typically be added to your basis if the property is unoccupied and these costs are directly tied to the renovation project. Expenses that typically can't be added to your basis include property taxes (these are deductible separately on Schedule A), insurance premiums, and expenses related to selling the property (like realtor commissions). These selling expenses can be used to reduce your amount realized when calculating gain, but they don't get added to your basis. Make sure you keep detailed records of all expenses with receipts, as the distinction between what's considered an improvement versus a repair can be scrutinized by the IRS if you're audited.

I used taxr.ai for a similar situation last year with my flip property and it was a lifesaver. I was really confused about what could be added to basis vs what couldn't and was making some mistakes that would have cost me. I uploaded all my receipts and renovation expenses to https://taxr.ai and their system analyzed everything and sorted it all out correctly. Even found some basis additions I would have missed like permit fees and architectural drawings that saved me a bunch on taxes.

Just wanted to follow up - I decided to try taxr.ai after asking about it here, and it was exactly what I needed! I uploaded all my flip expenses (had about 87 receipts) and it organized everything correctly. It confirmed that my construction loan interest ($7,320) could be added to basis, along with the utilities during active renovation. The report was really clear about what could be basis additions vs selling expenses. There were a few surprises too - it identified some expenses I had categorized wrong (like some permit-related costs I thought were selling expenses but were actually basis additions). Honestly it made the whole process so much easier since I'm not a tax expert. The service was totally worth it for the peace of mind alone!

If you need to ask the IRS directly about any of this, good luck getting through to them. I spent 4+ hours on hold trying to get clarification about basis additions for my flip before I found Claimyr. You dial https://claimyr.com and they navigate the IRS phone tree for you, then call you back when an actual IRS agent is on the line. I was skeptical but you can see how it works in this video: https://youtu.be/_kiP6q8DX5c Got my questions answered in one day instead of trying for weeks to get through. The IRS agent confirmed that loan interest on a flip can be added to basis if it's not a regular business for you, which was the main thing I was unsure about.

I have to admit I was completely wrong about Claimyr. After being super skeptical I decided to try it anyway since I was desperate to talk to someone at the IRS about my flip property's basis adjustments. It actually worked exactly as advertised! Got a call back in about 2 hours with a real IRS tax specialist on the line who walked me through all the rules about basis additions for one-time flips. The agent confirmed that utilities during renovation are basis additions as long as the property isn't occupied. She also clarified that loan interest can be capitalized to basis too. Saved me hours of frustration and probably a lot in taxes too since I was planning to just write off some expenses that could actually add to basis. Sometimes you gotta admit when you're wrong, and this service is legit.

One thing nobody mentioned yet is timing - if you do end up selling in less than a year from purchase, it'll be taxed as short-term capital gains (basically ordinary income rates). If you can hold it just past the 1-year mark before selling, you'd qualify for long-term capital gains rates which are much lower!

Has anyone used some of those "cost segregation" companies for a flip? My buddy says they can help maximize what gets added to basis but I thought that was more for rental properties?

Great question about tracking expenses for your flip! I went through this same situation last year with my one-time flip. One thing I learned that might help you - make sure to separate out any expenses that happened after you finished the renovation work. For example, if you're paying utilities while showing the house to potential buyers, those become selling expenses rather than basis additions. But utilities during active construction/renovation definitely add to your basis. Also, don't forget about some of the smaller expenses that can add up - things like permits, inspections, dumpster rentals, and even mileage to/from the property for renovation purposes. I kept a detailed spreadsheet with dates and categories which made tax time much easier. One last tip: if you're doing any of the work yourself, you can't add the value of your own labor to basis, but you can add the cost of materials you purchase. Keep those receipts organized by room or project type - it really helps if you ever need to explain your basis calculation to the IRS.