How house flips are taxed: short-term gains or business income
Most flip profits are taxed at ordinary income rates. If you hold the house a year or less as an investor, the profit is a short-term capital gain, which the IRS taxes as ordinary income. If you flip often enough to be a dealer, the house isn’t a capital asset at all, and the profit is ordinary business income. Either way, the lower long-term capital gains rates usually don’t apply. This is general information from IRS publications, not tax advice.
Investor: short-term capital gain
IRS Topic 409 says that if you hold an asset “one year or less, your capital gain or loss is short-term,” and that “net short-term capital gains are subject to taxation as ordinary income at graduated tax rates.” The typical flip, which ATTOM measured at 161 days from purchase to resale in the second quarter of 2026, falls well inside that year.
Dealer: ordinary business income
IRS Publication 544 lists property that is not a capital asset, including “property you hold mainly for sale to customers in your trade or business.” Someone in the business of buying, renovating and selling houses can fall into that category. Then the profit is business income whatever the holding period, typically reported on Schedule C if you file as a sole proprietor or single-member LLC.
Publication 334 defines a real estate dealer as someone “engaged in the business of selling real estate to customers with the purpose of making a profit from those sales,” and says rent a dealer receives on property held for sale is subject to self-employment tax. Business income in general is subject to self-employment tax, so a dealer’s flip profits usually are too. Dealer or investor status turns on your facts, such as how often you flip, how much of your income comes from it and how you hold the properties.
What this means for the numbers
Run the deal in the calculator and treat the profit as pre-tax. If the example’s $25,000 profit is taxed at a combined 30%, you keep $17,500. A rental held more than a year and then sold is a different story, and so is a refinance into a rental instead of a sale.
Records to keep
Keep the purchase settlement statement, every rehab invoice and draw, the loan statements with interest and points, utility and insurance bills, and the sale settlement statement. They make up your cost basis and your deductions.
Sources
- IRS Topic No. 409, Capital gains and losses (reviewed September 24, 2026).
- IRS Publication 544 (2025), Sales and Other Dispositions of Assets, chapter 2, Noncapital Assets.
- IRS Publication 334 (2025), Tax Guide for Small Business, Real Estate Rents.
- ATTOM, Q2 2026 home flipping report, released October 1, 2026.
Questions people ask
Is flipping a house a short-term capital gain?
If you held the house a year or less and you're an investor rather than a dealer, the profit is a short-term capital gain, which the IRS taxes as ordinary income at your regular rates. If you're a dealer, the house isn't a capital asset at all and the profit is ordinary business income.
Do I pay self-employment tax on flips?
Possibly. If flipping is your trade or business, your profits are generally business income, and business income is generally subject to self-employment tax. Dealer status depends on your facts, so ask a tax professional before you file.