Business Mileage Qualify for Home Loan

AZ Mileage add back mortgage

One common problem for many Phoenix area home-buyers (whether it be a self-employed or non self-employed borrower) are the deductions that a mortgage underwriter makes to the income that an Arizona mortgage applicant can use to qualify.   In the mortgage world there is a saying that applies to this scenario – “you can either buy a home or save on your taxes.”  You see, tax accountants try to find as many deductions from a tax payers gross income in order to help them reduce their tax liability to Uncle Sam.  The challenge is that when applying for a home loan many of those tax saving deductions also directly reduce the income that a mortgage company can use in order to qualify a borrower for a new Arizona home loan.

EXAMPLE:

If earn a buyer earns a gross income of $65k per year and they deduct $10k in business or job related expenses on their Federal tax return, the income that an almighty mortgage underwriter will let them use may be $55k (gross income $65k minus the $10k in expenses).   After all, if a loan applicant claims that they spent $10k on outside business related costs they are also saying that they had $10k less at their disposal to help pay their regular/personal expenses one of which is a mortgage.

However, I have some good news – a loophole if you will.  It relates to mileage.  A person may make an itemized deduction to their gross income relative to the business miles they drive during any given year.  The IRS allows this mileage deduction because they recognize that with miles come automotive costs such as depreciation to a vehicle, maintenance and of course GAS!!  When applying for a mortgage, borrowers are allowed to add back $.23 per business mile they deducted on their Federal Tax return to the income being used to help them qualify for a home loan.  The $.23 cent calculation yields an amount that can be added back to a borrowers annual income.

Example of How Business Miles Pay You Back:

Imagine an AZ mortgage applicant claims that they drove 10,000 business related miles in a given tax year.  Here is how your Arizona Mortgage Lender can use these miles to add income back to the borrowers effective income:

10,000 miles  x  $.23  =  $2,300  (total annual income add back)       $2,300  /  12 months  =  $191 (amount added back to borrower’s monthly income)

In this example, the borrowers Phoenix Mortgage Lender can add $191 to the monthly income being used to qualify them for the home loan.  There are other add backs relative to applying to a mortgage such as depreciation.   We will get into that in a later post!

If you have any questions about how to calculate your income for the purposes of getting approved for a home loan please call or email me.

By Jeremy House
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Comments

  1. Great info! I was looking for this. I take so many deductions, I want to classify as many items as possible as a “deductions” I will follow your blog and see what other tidbits you can offer. Have a great day!

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