Running a rental business is more than just collecting rent. To maximize profit, you must track every expense meticulously. Here are the top deductions you shouldn’t miss:
For real estate flippers, understanding Cost of Goods Sold (COGS) is essential for tracking profitability and reducing tax liability. COGS includes all direct costs tied to acquiring, renovating, and preparing a property for resale. Simply put, if the expense directly increases the property’s value or is necessary to get it ready for sale, it likely qualifies.
Common COGS items include the purchase price of the property, closing costs related to acquisition, contractor labor, materials, permits, architectural or engineering fees, and renovation expenses such as roofing, plumbing, flooring, and landscaping. Holding costs like property taxes, utilities, insurance, and loan interest may also count while the property is under renovation—depending on your accounting method and tax strategy.
However, not everything qualifies. General business expenses such as office rent, marketing unrelated to a specific property, mileage for networking, bookkeeping fees, and administrative salaries are typically operating expenses—not COGS. These are deducted separately and should not be mixed into project costs.
Accurate categorization is crucial. Misclassifying expenses can distort your profit margins and create issues during tax season. Work closely with your accountant to ensure your records are clean, consistent, and audit-ready. Proper COGS tracking gives flippers a clear picture of true project profitability.