Do Tax Write-Offs Hurt Your Mortgage Approval?
The short answer
They can. For most traditional loans, lenders qualify self-employed borrowers on the income left after write-offs. Every deduction that lowers your tax bill also lowers the income a lender can count. Some non-cash write-offs can be added back, and if deductions shrink your income too much, bank statement or other non-QM programs may help.
Why it happens
Your tax return is the lender's main proof of income. If your business brought in $150,000 and you wrote off $90,000, the lender usually starts from $60,000. Great for April 15th, less great for buying a house in Frisco.
What lenders can often add back
- Depreciation and depletion, since no cash left your pocket.
- Business use of your home, in many cases.
- One-time, non-recurring losses that are clearly documented, depending on the lender.
Meals, mileage, equipment and most other cash expenses usually stay deducted.
Smart moves if you plan to buy
- Talk to a lender before you file. Know what income you need to show, then talk with your tax pro about the trade-off.
- Look at both years. Lenders usually average two years and watch for declining income.
- Know your backup options. Bank statement, 1099 and P&L programs use different income math, with different costs.
We are not tax advisors, and you should never change how you file just for a mortgage without professional tax advice. The goal is to make the decision with your eyes open.
Frequently asked questions
Can I amend my returns to show more income?
Some lenders will consider amended returns with extra documentation, but it varies, and it has tax consequences. Ask both your tax pro and your lender first.
What if my income dropped this year?
Lenders may use the lower year or ask for an explanation. A short, honest letter helps.
Read mortgages after one year of self-employment, call (469) 414-5554, or visit our Texas branch.
By Kelly Welton, Mortgage Broker (NMLS #314183), Mohave Mortgage Texas Branch. Mohave Mortgage NMLS #1830581 · Texas Branch NMLS #2690682 · Equal Housing Opportunity. General information only, not a commitment to lend or financial advice. Programs, rates and guidelines vary and change.
