Example: A flipper has made $100k in profit in the calendar year 2016. In December 2016 he buys another flip and renovates using all of his $100k profits. The house doesn't sell till January 2017. Since he has $100k worth of expenses in 2016 does that mean the IRS sees his total 2016 profit as $0 or $100k???
You are taxed on each flip separately. If you made $100k on flip "a", and then took your profit to buy another property, you are still taxed on the income you made from flip "a". Buy and hold real estate investors have more flexibility in deferring taxes by utilizing a 1031 exchange.
Sometimes house flippers can strategically exclude income if they meet the requirements of section 121, that is live and use the house for 2 out of 5 years (general rule). But to do this, you need to be willing to reside in the property, which most flippers don't want to do.
Each transaction stands on it’s own, and no rehab deductions are taken til that house sells to determine profit......your 2016 taxable profit is still $100k.