Tax Man! He’s coming soon! That stressful time when all of your achievements of the previous year can be used against you. After all, the more you made, the more you owe! No wonder there’s so much advice out there about finding legal ways to whittle down your adjusted gross income. Hmmmmm……But if you’re looking to buy a home, you’ll want to think in a different way. Remember, the higher your reported income, the bigger the loan you can qualify for. So if you’re planning to buy a house in the next year or two, you may want to be less aggressive about claiming write-offs. I actually had this very conversation with a mortgage lender recently. Being in the real estate world you have files upon files of work related write offs. But…..if you want to purchase this year, you may want to be less assertive with those tax write offs. Brian Decker with Guaranteed Rate says, ” Leave that up to you and your financial adviser to decide. But if you want to look worthy in the eyes of a mortgage lender, you’ll need to do some legwork on your taxes, starting now. Here’s what you need to know, no matter what your situation”.
Self Employed filers…..Pay attention to large deductions, such as those for a home office or a business vehicle that can significantly reduce your reported income. For big, one-time deductions, be sure to save your documentation (you’ll need it for the IRS anyway), and explain to your lender the circumstance that reduced your income in that year. You can also alleviate their concerns by having a larger cash cushion or by putting down a bigger down payment.
“It doesn’t matter how much experience you have in a field, once you strike it out on your own, we need to see two years of self-employed income,” says Mike Lyon, vice president of operations at Quicken Loans.
Employed on staff filers…….Workers with W-2s typically have an easier time getting approved for loans than those who are self-employed, but keep this in mind: Any write-offs on your Form 2106 for unreimbursed business expenses will be deducted from your salary. We have many people moving here for new jobs. If you have a new job that doesn’t appear on your tax returns, ask your employer to provide a verification of employment letter, which can reassure the lender that you’re good for the income stated on your application.
If you are claiming rental income…….any write-offs you take on a rental property will be deducted from your rental income. Lenders will look at your Schedule E to verify the amount of rent you collect (showing them a lease won’t cut it), and determine how much you spend on the property. Deductions for depreciation don’t count against you.
Forgoing some of those tax deductions might make you cringe a little. But just think of the tax breaks you can benefit from once you own your own home!