Saturday, December 28, 2013

IRS Refund - Tax Deductions that can hurt your mortgage approval - Form 2106

Be wary of the BIG Refund...
Before you begin your year-end tax preparation for your 2013
Personal & Corporate Tax filings: Details you, and your tax preparer, should take note of: 
If you are in the market to purchase or refinance a home, BE CAREFUL not to take "extra" deductions especially on the 2106 Form - I see this a lot, and any portion of these expenses, less the allowable noted business mileage use of your car or depreciation*, will be deducted from the allowable usable income when qualifying for a mortgage. It may be great to save on taxes, but it just may STOP you from qualifying for a new mortgage, whether purchasing or refinancing. For instance, if you show $12,000.00 of expenses on the 2106 form and non of these expenses can be added back into your income,* then you have just lost $1000 a month in qualifying income. For example: If you qualified for a $2500 monthly mortgage payment before the 2106 form was considered, you now may only qualify for a $2068 monthly mortgage payment.
Here is the FHA underwriting guideline Re: (Salary, Wage and Other Forms of Income, ref 4155.1 4.D.2.l)
Automobile Allowances and Expense Account Payments
*Only the amount by which the borrower’s automobile allowance or expense
account payments exceed actual expenditures may be considered income. 
To establish the amount to add to gross income, the borrower must provide
IRS Form 2106, Employee Business Expenses, for the previous two years,
and employer verification that the payments will continue.
*If the borrower uses the standard per-mile rate in calculating automobile
expenses, as opposed to the actual cost method, the portion that the IRS considers depreciation may be added back to income.
Expenses that must be treated as recurring debt include the borrower’s monthly car payment, and
any loss resulting from the calculation of the difference between the actual expenditures and the expense account allowance.
To find out how income is analyzed by mortgage underwriters, email me for a Free Income Analysis form at   

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