Accounting when flipping real estate investments

Posted on: September 8th, 2015 by Real Estate Accountants 2 Comments

Tools to renovateThe tax rules surrounding flipping properties, unlike rent-to-owns, as described in a previous article, are slightly more straightforward. But, using the proper structure is still critical. Think of this as a short primer on those rules, and how they may affect your taxes as you plan your real estate investment business with your real estate accountant and team of other professionals.

Accounting for flips held in a corporation

Generally speaking, if you are in the business of acquiring properties, renovating them and selling them for a profit, you are earning “active” business income. Whether profit from a flipped property is treated as business income or a capital gain ultimately always comes down to intention – what was your original plan, what you documented, what actually happened? But that’s a whole other article! For this explanation we are going to talk about the active side. If you will be taxed as if you received income, you will be taxed on 100% of your profits vs. 50% of your profits for capital gains.

Similar to the point mentioned for RTOs, any property you hold while it is being renovated, or is currently for sale is considered an inventory item, and not a depreciable capital asset.

The cost base of your property increases as you renovate it. Major renovations, small repairs, cosmetic updates, utilities paid at the property while being worked on, all get capitalized. These items are capitalized because you are getting your “inventory” ready for sale.


At the time of sale your business income will be your proceeds of sale, less your updated cost base of the property. This active income is taxed as business income. Assuming that you qualify for the lower rate of tax in Ontario, this will be 15.5%, or 14% in Alberta, for example. A limited amount of “soft” costs may be deducted for tax purposes each year as well, such as some property taxes, utilities, etc..

I don’t have a corporation…my flip is personally held

Alright, sounds simple enough – flips are considered taxable income (not capital gains). Again, more tax planning needs to happen here as your business income combined with other sources of income earned personally will increase your total tax payable – especially if you climb up into a higher tax bracket.

George E. Dube, CPA, CA

George E. Dube, CPA, CA
Real estate accountant, real estate investor, speaker, author

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2 Responses

  1. Kash says:

    so from this article I gather that even if I flip under a corporation (intentional flips), i’d still get taxed 100% ? even if the corporation is in the business of flipping. Should that not be capital gain?

    • Real Estate Accountants says:

      Because of the very intention of flipping you can think of yourself as being “in business”. While many exceptions exist in our tax rules, all is not lost. You could actually, believe it or not, pay less tax by being taxed on 100% of the income as compared to the capital gain. It’s not uncommon for people to want to be paying tax on 100% of the income within the corporation.

      Don’t get me wrong. Sometimes the capital gain may be better but it is important to analyze for your particular situation and consider short- and long-term tax implications.

      Warm regards…
      George Dube