Not enough details about your situation to be specific to you. Is this a one time flip? Are you in the business of flipping houses? Are you a Real Estate Professional? Below are a few scenarios, see if it applies to you.
In terms of the flip itself, expenses the investor has like the cost of materials needed for the actual renovation, and the cost of labor on the property can be deducted. If you're a fix and flip investor, and you sell your property in under twelve months, then capital gains tax will apply to the income you make.
If you are considered a real estate professional and filing a Schedule C, you can deduct the taxes and insurance. If you are not, you must wait until you sell the property.
However, if this was purchased as an investment to fix and resell, you add the carrying costs including mortgage interest, property taxes and rehab expenses to the basis of the property. When you sell it, all of these costs (and others from the purchase) become part of the adjusted basis for determining gain or loss on the property. Property taxes are added to the basis and are not deductible on Schedule A since they are considered a business expense, not a personal one, because of the status as an investment property.
You will report the sale under the investment section unless you are considered a real estate professional; if you need directions at that time, please post a new question. Until the property is sold, you do not report any expenses from the purchase or updates you have completed except as noted above for real estate professionals.
Finally, you will need to determine if you are a real estate investor or a real estate dealer.
Generally speaking, real estate investors purchase real estate with the intention of holding their properties and gaining a financial return; real estate dealers buy and sell real estate as part of their everyday business. It all comes down to the intent behind the property purchase. Even if you originally purchased the property to hold, but ended up selling it sooner, it does not mean that you are a dealer.
If you are a real estate investor, then the "flip" will be reported as a sale of an investment asset. To report it on your tax return go to: Federal Taxes - Wages & Income - Stocks, Mutual Funds, Bonds, Other. Tell the program that you did sell investments in 2015 - then that you did not received 1099-B - select "Everything Else" - continue entering the rest of the information. This will generate gain subject to preferential capital gain rates. Or a loss will be limited to $3000 deduction against ordinary income.
If you are a real estate dealer, then you will report the "flip" on Schedule C. Sales price will be your gross income (general income in TurboTax) and basis will be your cost of goods sold. This income will be subject not only to income taxes at ordinary income tax rates, but also self-employment taxes. You will also need to upgrade your TurboTax software to Home & Business.
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