Fix and flip and new construction projects have become two of the most lucrative investment strategies in the United States–garnering a 30.4% ROI on average. While the real estate investment market is brimming with opportunity, staying informed on the latest rules, regulations, and capital gains on house flipping and new build projects is essential to success and longevity.
In this article, we’ll provide the most up-to-date rules and regulations, including the latest IRS house flipping rules and how they may impact investors’ capital gains in 2025.
In this article, we’ll provide the most up-to-date rules and regulations, including the latest IRS house flipping rules and how they may impact investors’ capital gains in 2025.
Rules & Regulations
Whether you’re just starting or an experienced investor in construction and rehab projects, staying updated on the latest rules and regulations is essential to avoid financial penalties or losses. Let’s look at three key rules and regulations for home flippers and developers to familiarize themselves with and research. This includes building codes and safety regulations, energy efficiency and sustainability rules, and recent anti-flipping measures:
Although national codes and safety standard organizations are a good start, states, cities, and towns can legislate local zoning and safety rules. For example, in 2025, several states have relaxed zoning laws for new constructions and accessory dwelling unit (ADU) renovations to combat housing shortages.
- Building Codes & Safety Regulations: Investor contractors know the importance of building code and safety compliance. Nationally, the US follows several core building codes and safety organizations, including:
- The Fire Protection Association (NFPA) Codes & Standards
Although national codes and safety standard organizations are a good start, states, cities, and towns can legislate local zoning and safety rules. For example, in 2025, several states have relaxed zoning laws for new constructions and accessory dwelling unit (ADU) renovations to combat housing shortages.
- Energy Efficiency & Sustainability Rules: Consumer and governmental demands for sustainability remain high in 2025. Investors must stay up-to-date and mindful of the latest local and national requirements for installing energy-efficient appliances, windows, solar panels, and more. Additionally, investors may need to acquire the latest green certifications such as the Leadership in Energy and Environmental Design (LEED).
- Anti-Flipping Measures: The Federal Housing Administration (FHA) has implemented a 90-day rule and other provisions that hinder investors’ abilities to successfully secure and utilize conventional mortgages through banks and credit unions. That is why many investors and developers turn to private lenders to avoid heavily regulated approval processes, strict requirements, and penalties.
New Constructions, Flipping Houses, & Taxes
In recent years, the home flipping and new construction industries have been subject to evolving Internal Revenue Service (IRS) regulations and tax rules affecting capital gains on house flipping and new builds. For investors, one of the most consequential IRS regulations is the classification of dealers and investors in real estate.
IRS House Flipping Rules: Dealers vs Investors
The distinction between a dealer and an investor by the IRS significantly affects taxes on an investor’s sold property.
- Investor Status: An individual who buys and holds a property for a long period and is eligible for long-term capital gains tax rates.
- Dealer Status: An individual who buys and sells properties quickly and is subject to short-term capital gains and self-employed taxes. Dealer status taxpayers are also disqualified from certain capital gains tax benefits and deferrals.
So, what’s the difference between short- and long-term capital gains taxes? For investors, a lot. Short-term capital gains apply to properties sold in under one year. Profits from a property’s sale are taxed as ordinary income, with rates as high as 37% depending on your tax bracket.
Long-term capital gains are applied to any property held for more than a year. Long-term capital gain taxes are much more favorable for investors–ranging from 0-20%. Additionally, an investor status and long-term capital gains distinction unlocks several new build and house flipping tax deductions and write offs.
Long-term capital gains are applied to any property held for more than a year. Long-term capital gain taxes are much more favorable for investors–ranging from 0-20%. Additionally, an investor status and long-term capital gains distinction unlocks several new build and house flipping tax deductions and write offs.
New Build & House Flipping Capital Gains Implications on ROI
Your IRS classification and capital gains tax designation will directly and significantly affect the profitability of your investment project. Let’s look at an example to see how much capital gains affects ROI and profitability.
House Flipping Tax Calculator Example
Let’s say you purchase a fix and flip property for $250,000. Renovations on the home take 9 months and cost $50,000. After 9 months, you sell the home for $400,000. In this scenario, your total investment (purchase price + renovation costs) was $300,000 and your gross profit (selling price – total investment) was $100,000.
Since you sold the property in under a year, you are classified as a dealer and subject to short-term capital gains taxes. Let’s say you’re in a 35% tax bracket. That means you owe $35,000 in taxes–leaving you with a $65,000 profit.
If the property were sold after a year of holding, and taxed as a long-term capital gains rate of 20%, the net profit would be $80,000. A $15,000 difference!
Since you sold the property in under a year, you are classified as a dealer and subject to short-term capital gains taxes. Let’s say you’re in a 35% tax bracket. That means you owe $35,000 in taxes–leaving you with a $65,000 profit.
If the property were sold after a year of holding, and taxed as a long-term capital gains rate of 20%, the net profit would be $80,000. A $15,000 difference!
Conclusion
While fix and flip and new build investing remains one of the most profitable markets in the country, knowledge and adaptability are the best way to ensure success and optimize returns.
In 2025, investors must stay up-to-date on the latest code and safety regulations, sustainability rules, and anti-flipping movements. Additionally, adjusting hold times while flipping houses for capital gains and tax break benefits may be the most advantageous and lucrative approach for investors. With the latest rules and regulations surrounding capital gains on house flipping, investors and developers must formulate a thorough investment strategy before proceeding.
In 2025, investors must stay up-to-date on the latest code and safety regulations, sustainability rules, and anti-flipping movements. Additionally, adjusting hold times while flipping houses for capital gains and tax break benefits may be the most advantageous and lucrative approach for investors. With the latest rules and regulations surrounding capital gains on house flipping, investors and developers must formulate a thorough investment strategy before proceeding.
Finance of America Commercial: Industry Insights & Reliable Financing All In One
Finance of America Commercial (FACo) has been helping investors navigate the complexities of real estate regulations, taxes, and capital gains on house flipping and new construction projects for over a decade. Our team of industry experts has the insights, tools, and financial resources to help you plan, orchestrate, and achieve your real estate investment goals.
Our Fix and Flip Loans provide home flippers with:
If you’re looking to partner with a dedicated team of industry professionals, look no further than FACO. CLICK HERE to schedule a FREE consultation today.
Our Fix and Flip Loans provide home flippers with:
- Flexible 12-18 month loan terms
- Coverage of up to 100% of renovation expenses
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- Up to 24 month loan terms
- Up to 100% construction costs
- 1-4 non-owner occupied unit residential, townhome, and condo eligibility
If you’re looking to partner with a dedicated team of industry professionals, look no further than FACO. CLICK HERE to schedule a FREE consultation today.
