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If Youre Buying A Home This Year Whip Your Taxes Into Shape Now
Ah, tax timeâ€”that magical time when all your accomplishments of the previous year can be used against you. After all, the more you made, the more you owe! No wonder thereâ€™s so much advice out there about finding (perfectly legal) ways to whittle down your adjusted gross income.
But if youâ€™re looking to buy a home in San Antonio, Texas, youâ€™ll want to try a different tackâ€”the higher your reported income, the bigger the home loan youâ€™ll qualify for. So if youâ€™re planning to buy a house in the next year or two, you may want to be less aggressive about claiming write-offs.
As Brian Decker, a loan originator with Guaranteed Rate, puts it: â€śIs paying an extra few thousand dollars in state and federal taxes for the year worth it to become a homeowner?â€ť
Weâ€™ll leave that up to you and your financial adviser to decide. But if you want to look worthy in the eyes of a mortgage lender, youâ€™ll need to do some legwork on your taxes, starting now. Hereâ€™s what you need to know, no matter what your situation.
If youâ€™re self-employed
Pay attention to large deductions, such as those for a home office or business vehicle that can significantly reduce your reported income. For big, one-time deductions, be sure to save your documentation (youâ€™ll need it for the IRS anyway), and explain to your lender the circumstance that reduced your income in that year. You can also assuage their concerns by having a larger cash cushion or by putting down a bigger down payment.
â€śIt doesnâ€™t matter how much experience you have in a field, once you strike it out on your own, we need to see two years of self-employed income,â€ť says Mike Lyon, vice president of operations at Quicken Loans.
If youâ€™re on staff
Workers with W-2s typically have an easier time getting approved than those who are self-employed, but keep this in mind: Any write-offs on your Form 2106 for unreimbursed business expenses will be deducted from your salary.
If you got a new job that doesnâ€™t appear on your tax returns, ask your employer to provide a verification of employment letter, which can reassure the lender that youâ€™re good for the income stated on your application.
â€śAs long as youâ€™re in the same field and your earnings are roughly the same, weâ€™re comfortable with job changes,â€ť says Dave Norris, an executive vice president with loanDepot.
Workers whose tax returns show that they were unemployed for a significant period of time in the past two years may also run into trouble, since lenders want to see a consistent two-year work history. Be ready to explain any long employment gaps.
If youâ€™re claiming rental income
Just as your business expenses will be deducted from your salary, any write-offs you take on a rental property will be deducted from your rental income.
Lenders will look at your Schedule E to verify the amount of rent you collect (showing them a lease wonâ€™t cut it), and determine how much you spend on the property. Deductions for depreciation donâ€™t count against you.
We knowâ€”forgoing some of those tax deductions might make you cringe a little. But just think of the tax breaks you can get once youâ€™re a homeowner, and itâ€™ll all be better soon.
Thank you for this great article entitled "If You're Buying A Home This Year, Whip Your Taxes Into Shape Right Now" by Beth Braverman
Presented by Tony Landaverde, Realtor
San Antonio, TX Realtor with eXp Realty
A Texas Licensed RealtorÂ® License #607299
For information on careers with eXp Realty click on the link: Tony Landaverde eXp Careers
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