1. They are holding Inventory; the Improvements to it are more inventory value. Then, when it sells, all of the accumulated invested value is Cost of Goods Sold, so that you are matching income to the costs that generated that income. That is the profit that will be reported for taxes. Inventory is a different type of asset than Depreciating property.

2. No. Nothing there that relates to the property is Expense. It's part of holding the inventory until it sells. The only expenses would be, for instance, General Liability insurance and postage and other entity costs.

It seems you need to do some research on Flipping Property.