Your CPA Is Saving You Money… And Costing You A House

If you are self employed, run a side hustle, or work as a freelancer or independent contractor, you already know taxes can feel confusing. Add mortgage qualifying to the mix and suddenly your income looks completely different on paper than it does in real life. Your CPA might be Saving You Money… but Costing You A House.

This guide breaks everything down in simple English so you can understand how lenders really calculate your income, what you should avoid writing off, and how to plan your taxes in a way that does not sabotage your ability to buy a home.

Let’s simplify it.

Why Your Tax Return Matters More Than Your Bank Account

When you are self employed, lenders do not use your gross deposits. They use your taxable income. That means the number you put on your tax return directly determines the home you qualify for.

Some expenses help you reduce taxes but also lower your mortgage qualifying income. Other expenses can be added back and do not hurt you at all. Knowing the difference can save you thousands and can be the difference between qualifying and not qualifying.

What Lenders Add Back To Your Income

Certain business expenses are not real cash expenses. Because of that, lenders allow them to be added back to your income. These items help you qualify for more even if they lowered your taxes.

Here are the main add backs:

DepreciationA non cash expense that represents wear and tear on equipment or vehicles. Lenders add this back.

DepletionAnother non cash expense that lenders typically add back.

Amortization and certain casualty or one time lossesIf the expense is not ongoing and does not affect your actual earning ability, lenders may add it back.

Documented one time or unusual expensesIf you can prove an expense is not part of your normal business operations, lenders may remove it from the calculation.

These items help your loan approval because they raise your qualifying income.

What You Should Not Write Off If You Plan To Buy A Home

These deductions reduce the income lenders use to qualify you. You can still take them for tax purposes but they come at the cost of lower qualifying income.

Business use of homeThis deduction does not get added back by lenders.

Normal operating expensesVehicle expenses, supplies, advertising, phones, internet, utilities, insurance, equipment and anything you regularly use for business.

Meals and entertainmentThese deductions do not get adjusted on the mortgage side and reduce your qualifying income.

The more you write off in these categories, the lower your mortgage approval amount.

How To Prepare If You Want To Buy A Home Soon

Here are simple steps every self employed borrower should follow.

1. File taxes earlyThis gives lenders verified income to work with.

   
   

2. Talk to your accountantTell them you plan to buy a home so they can help structure your deductions wisely.

   
   

3. Be careful with optional write offsAsk yourself whether a deduction is worth lowering your qualifying income.

   
   

4. Keep your records cleanAccurate books make it easier for lenders to understand your true income.

Final Thoughts

Self employed borrowers are not at a disadvantage. The key is understanding how tax write offs affect your ability to qualify and planning ahead. If you know which expenses matter and which ones do not, you can reduce your tax bill while still showing enough income to buy the home you want.

"Your CPA Is Saving You Money… And Costing You A House" is brought to you by EHG Mortgage, your local independent mortgage advisors. Contact us today, for help with planning your future home purchase.