Residential Property Flipping Rule

Before this rule, a seller could argue for capital gains treatment (with its 50% inclusion rate) or claim the principal residence exemption depending on their intent when they bought the property. The flipping rule removes that debate for any property, including an assigned right to purchase a housing unit, disposed of within 365 consecutive days of purchase: the resulting gain is deemed fully taxable business income, effectively up to double the tax exposure of capital gains treatment.

This matters whenever a client is buying to renovate and resell quickly, assigning a pre-construction contract, or exiting a property within a year of purchase. The rule carries exceptions for specific qualifying life events — death, separation or divorce, a new child, job loss, disability or illness, insolvency, and certain relocations — that can preserve capital gains or principal-residence treatment even under 365 days, so clients in that situation should be directed to a tax professional rather than assume the worst case automatically applies.