Do Tax Write-Offs Hurt Me?

A CPA may encourage you to write off business expenses to get you a larger refund, but it could cost you your future dream home!

Standard Deduction: If you take the standard deduction on your tax return, you will not be affected when trying to purchase a home, simple as that.

Itemized Deduction: When you write off business miles for your commute to work, charity gifts, and mortgage interest, you are writing off taxes using an itemized deduction. It is important to know which of these will HURT YOU when trying to qualify for a mortgage.

2106T Job Expenses on itemized deduction: This is the big one folks! When you write off union dues, costs for uniforms, business miles for the commute to work, or meals and entertainment, it gets lumped into this category. Essentially when you write off 2106T expenses you are saying, "This is what I really after I spent money on driving to work, work equipment, taking prospects out to lunch, etc."

How does that affect you buying a home?

Every dollar you write off in the 2106T Job Expense category will be subtracted from your income.

Ex. Joe makes $85,000 per year (about $7,085 per month). Joe wants to get a large tax refund so that he can use that money toward purchasing a new home. Joe writes off $12,000 worth of commuting miles, $3,000 worth of meals from going out with co-workers and running "business meetings". When Joe tries to apply for a mortgage, his actual income that can be used to qualify is $85,000 minus the $15,000 in write-offs. Instead of making $7,085 per month, it really looks like he is making $5,833 per month.

What if I'm self employed and file a Sch. C?

If you file a Schedule C, the same principle still applies. While you may be able to add back portions of depreciation, business miles, etc. Typically the underwriter will look at your BOTTOM LINE TENTATIVE NET PROFIT.

Ex. Joe is a carpenter and makes $85,000 a year gross. After his write-offs, his tentative profit is only $20,000. Unless we can add back a portion of depreciation or business miles, this is what we are stuck using!

Are there other options?

Fortunately, some loans do not require tax returns for w2 employed borrowers. There is also an option of a "bank statement only" loan that will not require tax returns (great option for self employed).

The BEST thing you could do is call me BEFORE you file your returns and let me explain how your write-offs will affect your ability to purchase a home.

Feel free to call me or email me with any questions!


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