Hello 

He is going to be considered a Real Estate Dealer for the IRS. If he did not sell anything I would recommend that you capitalize all the expenses in the Ending Inventory in COGS in Schedule C so when he sell them it will help him to reduce the gains. I have a couple of those clients and what I do is that I detailed the houses being flipped individually assigning a number, for example House 1, make sure you write a brief detailed of the house, such as address, purchase price, etc. Then when you go to expenses, labor, materials, etc you match each expenses with the corresponding house. The purpose of that is to have a control for next year because maybe it he bought 3 houses for example, and next year sell 2, you know which expenses are which, remember the ending inventory will transfer the amount to next year. It is like an organization tools what I just explained. Maybe somebody has a better way, but I learned this way from some real estate tax preparers years ago. Remember, no depreciation allowed for RE Dealers (flippers) thank you.