As tax season has come and gone I am always amazed at the frequency and the amount of 2106 expenses clients show on their income tax returns. Also known as the infamous unreimbursed employee expenses, the most common deduction being made is for mileage on one’s vehicle. A great idea in theory as it will ultimately reduce your tax liability, but the ramifications of taking such a deduction are much more consequential especially when trying to get approved for a mortgage loan.
One of the single most important factors in determining someone’s capacity to borrow is the verification of income via their income tax returns. Even though the 2106 mileage deduction may be legitimate we all know that the primary purpose of this deduction is to reduce your tax liability and/or increase your tax refund. However, the days of what we know to be true are long gone. Simply put, if you take this deduction be certain that this amount will also be subtracted from your gross income and your chances of qualifying for a loan will be dramatically reduced!
For example, let’s say your gross income for 2011 was $72,000 or $6,000 per month. Now let’s factor in a 2106 deduction that equates to $20,000. Your gross income now has just been slashed to $52,000 or $4,333 per month. Even though this 2106 expense is usually just a paper deduction it has now become a very unfortunate realization… a silent killer per se. The $1,667 reduction in monthly income will reduce your purchase/refinance power by approximately $150,000. Now that’s a BIG difference!
A CPA’s job is to save their client the most amount of money, but at what cost? Many of us are unfamiliar with the many different tax schedules and the consequences of such particular filings. Before you plan on buying or refinancing your home please contact me, Brian Delbenes, so that I can determine how much you can “really” afford which will ultimately save you a lot of time, money, and headache down the road!