Tax Refund Question - Possibly applying for mortgage in 6 months

[tony46231]

So I know I'll need to provide my W2's and pay stubs to prove my income.  My question is on the tax side.  Will I need to provide 1040's for the past few years?  My concern is that in 2013 I sold some property at a loss and my 1040 is showing an adjusted gross income of negative 7K and my tax rate as 0%.  I ended up getting everything I paid in federal income tax back this year, because of the loss on the property.  

If I do have to provide 1040's, is the adjusted gross income going to cause an issue if I were to apply for a mortgage?

Hoping to go with a conventional loan with 10-15% down.

[DallasLoanGuy]

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@tony46231 wrote:

So I know I'll need to provide my W2's and pay stubs to prove my income.  My question is on the tax side.  Will I need to provide 1040's for the past few years?  My concern is that in 2013 I sold some property at a loss and my 1040 is showing an adjusted gross income of negative 7K and my tax rate as 0%.  I ended up getting everything I paid in federal income tax back this year, because of the loss on the property.  

If I do have to provide 1040's, is the adjusted gross income going to cause an issue if I were to apply for a mortgage?

Hoping to go with a conventional loan with 10-15% down.

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So a rental property?  Sold at a loss and you had to take cash to the closing table?

[tony46231]

No I didn't have to take cash to the closing table.  It was an acre of land and a double wide mobile home that I paid cash for about ten years ago and have rented out ever since.  What I paid for it was much more than what I sold it for and the assessed value as of 2013 was also much more than what I sold it for.  I also had deductions for repairs that I made prior to selling it.

[ShanetheMortgageMan]

1040's aren't needed unless you receive commission income and it's at least 25% of your qualifying income OR after the underwriter reviews the 4506t results they see something they'd need your tax returns for.

Capital gains losses aren't included in your debt ratio calculation... people sell stocks, etc. at a loss all the time.

[tony46231]

Maybe I'm nervous for no reason, but I contacted a local bank yesterday about the pre-approval process, and on the list of documents needed is 2013 and 2012 Signed/dated federal tax returns – All schedules.  Was hoping they didn't ask for it, because I saw someone else yesterday post about having to wait two years, due to his AGI on tax one of his tax returns making his income look super low, because of deductions.

[ShanetheMortgageMan]

Yes, tax returns are usually needed.  Even if they aren't, you usually sign an IRS 4506t form at application which allows them to pull the tax transcripts anyway, so they'll see what is on your tax return even if you don't provide them upfront.

No need to be nervous, your tax returns are what they are.

[tony46231]

Am I correct in assuming that the capital gains loss won't go against qualifying income, but deductions I made on a Schedule A (such as repairs to the property before selling it) will impact qualifying income?  I read the thread from yesterday again that was somewhat similar and that is what I gathered from it.  And AGI has no direct impact on qualifying income?  It's the Schedule A deductions, which in turn does lower AGI, that will impact qualifying income?

[ShanetheMortgageMan]

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@tony46231 wrote:

Am I correct in assuming that the capital gains loss won't go against qualifying income, but deductions I made on a Schedule A (such as repairs to the property before selling it) will impact qualifying income?  I read the thread from yesterday again that was somewhat similar and that is what I gathered from it.  And AGI has no direct impact on qualifying income?  It's the Schedule A deductions, which in turn does lower AGI, that will impact qualifying income?

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I previously mentioned in this same thread here that capital gains losses don't impact your debt to income ratio.  I am not sure which other thread you are referring to, but you'll need to be very specific on what deductions on schedule A (the line item & description from schedule A).  I am looking at Schedule A and do not see any line item for repairs done to a property, those usually show up on Schedule E.  However usually the only item on schedule A that impacts your qualifying income will be line 21, unreimbursed employee expenses.

[tony46231]

Shane,

The other thread was a similar topic, but I'm not sure that it exactly matched my situation, because there were not enough details given.  I thought that you had responded to it, but it may have been someone else.  I think I now have a better understanding of what's looked at as far as tax returns go.  And I was confused when I mentioned Schedule A deductions.    

I'm looking at my 1040A right now, and I see that the deductions that I'm talking about are actually on a Schedule E.  Specifically line items 5, 6, 7, 9, 10, 14, 15, 16, 17, & 18.  These are deductions for advertising, auto and travel, cleaning and maintenance, insurance, legal and other professional fees, repairs, supplies, taxes, utilities, and depreciation.  I have losses totaling 11K in those categories.  Will those items impact qualifying income?

[ShanetheMortgageMan]

Hi Tony, so those expenses on Schedule E are calculated into determining positive/negative cash flow on a rental property which is listed on the schedule of real estate owned on the loan application.  If you still have that property, then yes those items will be factored into what type of positive or negative rental income that property would give you... however if you no longer own that property then those items aren't factored since that property wouldn't be listed on your schedule of real estate owned.