Top 10 Tax Deductions for Real Estate Flippers

Flipping real estate can be a great way to earn quick money, and it can also be a great way to save money.  If you have started flipping real estate, you are entitled to numerous tax deductions to help you lower the taxes you owe the IRS, to help you increase the money you are putting back into your pocket.  Here is a list of the top 10 deductions you are entitled to.

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  1. Start-Up Costs – Start-up costs are the non-recurring expenses you incur prior to opening your business. These costs include the training you payed for in order to learn how to be a real estate flipper so you could start your new business.  The rules for this deduction are very simple.  The first $5,000 you spend on educating yourself and getting your business up and running is 100% deductible year one.  Any remaining money you pay above this limit must be amortized over the next 5 years.
  2. Real Estate Purchase – Some of you are going to be able to flip your real estate without ever taking ownership of the property, but for those of you who can’t do this you need to be aware you can still deduct 100% of the purchase price of the property. This deduction isn’t taken when you buy the property, but rather when you sell it.  As a result, you will only pay tax on the net income received less any other deductions you have.
  3. Closing Costs – Anytime a property is bought or sold there are costs to complete the transaction. These costs include things like title fees, loan origination costs, taxes, and insurance.  All these costs are deductible to you when you flip the property and can be used to help you lower your tax overall tax bill.
  4. Carrying Costs – If you are using someone else’s money to do your real estate flips you will pay interest for the use of this money. This interest gets added to the basis of your property, so when you sell the property you can take what you pay in interest as a deduction also.  Hopefully for most of you this expense will be very small, but if it is not, know you are at least getting a deduction.
  5. Improvements – Most of you are going to flip your properties without making any improvements to the property. Others of you will make improvements in hopes of making even more money.  Any improvements you make to the real estate, or the property on the real estate, will also be added to your basis and deducted at time of sell.
  6. Home Office – As a business owner, you need an office, and what a better place to set that office up than in your home.   When you set up a home office you are entitled to a number of deductions for that home office.  They can include any improvements, furniture, cleaning or repairs.  There is also a safe-harbor deduction for those of you who want to keep it simple and just take the IRS safe-harbor amount.
  7. Automobile – Prior to business ownership, your car was basically nothing more than a money pit, because the more you used your car the less it was worth. As a business owner, the playing field has changed because now you can write off all your business miles as a business expense and take a tax deduction.  What is considered a business mile?  Any mile you drive from your home office, to other locations that benefit your business.  It may include daily visits to a property you own, it may include trips to see new properties, or just running basic errands for the business.
  8. Cell Phone – Hello, this is your phone, and do I have tax deductions for you. As a business owner you must have a way to communicate with your customers and your cell phone is a great way to do this.  You will have to do an allocation between business and personal use, but with the increasing price of cell phones this can turn into a very nice deduction.
  9. Travel – How would you like to go on a 4-day vacation to a nice resort and be able to write of 100% of the cost? It can be done, if you follow some simple rules and are willing to do some work while you are on your trip.  The key is to spend at least half of the day looking at potential investment properties on the day you get to your location and then you can enjoy your weekend, which for IRS purposes become sandwich days, and then work on Monday for over half a day looking at properties before you come home.  By structuring your travel this way, you can write off 100% of your travel costs for the whole trip, even though you only worked just over two half days.
  10. Advertising – In order to find and sell your properties you are going to have to spend some money on various advertising mediums. All money you spend to help find, or promote, your properties is 100% deductible by your business.

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