What line is on a Schedule C is used to determine income when applying for a mortgage?

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I have 2 answers that it is the result after all the deductions, or they look at your gross income. Who is the mortgage industry and lending do not understand? Thank you!

4 Comments
  1. Reply
    the tax lady
    April 30, 2011 at 12:10 am

    With the exception of depreciation and standard mileage, every other deduction on your schedule C represents money you’ve spent during the current year. Depreciation represents money you’ve previously spent (ditto for the standard mileage) and is indicative of expenses you will have in the future…so NET is the only valid amount.

    In reality, they should consider the NET amount MINUS the 1/2 SE tax adjustment.

  2. Reply
    Landlord
    April 30, 2011 at 12:42 am

    Gross is ignored, all that countsd is actual income, the net amount.

  3. Reply
    liveinmd
    April 30, 2011 at 12:51 am

    You take the AGI from pg 1 of the 1040. Add back depreciation from Sched C. Subtract the exempted half of expenses (usually one half of the amount on the line), add back in any interest or tax free income from social security.

    basically, depreciation is not a real expense, so it is given back in the annual income, the business expenses that are taxed on your return is only half of what you actually spend so it is removed from the income.

  4. Reply
    Steven
    April 30, 2011 at 1:00 am

    Here is the correct answer.

    you take your adjusted gross income+depreciation/depletion+business use of home=annual income for the purpose of applying for a mortgage. You may have to argue business use of home as it is not commonly used.

    Gross revenue is not considered for a mortgage. It’s worth mentioning that a great majority of self employed individuals are getting turned down for mortgages.

    EVERYONE in mortgage lending knows that self employed individuals understate their income and create expenses when filing their taxes. Here’s what a typical schedule C looks like. Gross revenue shows $ 100,000 and the adjusted gross income shows a loss if $ 10K. In the past there were stated income,reduced income, no income documentation loans for these types of borrowers. All of these programs disappeared due to the events of the last few years.

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