Mortgage Grapevine

Income Question

I have a borrower that is a W-2 employee of a small family owned business. In 2007 he made about $43,000, all W-2 and adjusted groos on 1040 is about $43,000.

In 2008 he W-2'd about the same, but he bought a truck that he uses for the business and filed a form 4562 with $11,422 in depreciation. Adjusted gross income is about $32,000.

Can I add the $11,422 to the $32,000 and then average for the last 2 years. On the self-emploed income analysis there is no place to put depreciation from a form 4562, and I don't know if the borrower has to have the depreciation for 2 years to add it back in.
by Vinnie The Leg Breaker November 6, 2009 3:32 PM

chuck?
by theonetheonly November 6, 2009 4:15 PM

There is no reason you cannot add back the depreciation expense. This person is part owner of the family business which is some type of corportation.

If this is a conventional mortgage, I am surprised that you need two years worth of tax returns unless they have low (sub 680) scores. It is often required to provide one year.

FHA--you definately need two years. You most likely will be required to obtain the corportate returns also to demonstrate there was not a significant loss to the corportation. If there was a loss, you will be deducting his ownership percentage of the loss against his income.
by REAL ANSWERS November 6, 2009 4:20 PM

Borrower is not an owner, his father is sole owner.
by Vinnie The Leg Breaker November 6, 2009 6:01 PM

Then he should not be filing a 4562. If he really is an employee (I don't believe he is), he should be filing form 2106. This is for depreciation on vehicles and unreimbursed employee expenses for wage earners. Look up the articles of incorporation---I bet he is listed.
by REAL ANSWERS November 6, 2009 6:10 PM

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