There is a little know rule Fannie Mae has regarding self employment income. I see it being enforced more and more, and if you are self employed you should be aware of it.
It’s regarding the borrower’s proportionate share of income or loss. Here is the actual guideline…
“The Borrowers proportionate share of income or loss is based on the borrowers percentage of capital ownership in the business as of the end of the year as shown on IRS Form 1065, Schedule K-1. The Lender can only consider the borrowers proportionate share of the business income or loss after making the adjustments to the business cash flow analysis discussed below. Business income may only be used to qualify the borrower to the extent it is supported by a documented, stable history of distributions. “
The readers digest interpretation is this… If your reported K-1 income is not proportionate to your share ownership of the business, that income is at jeopardy and may not be allowed.
Something to keep in mind as you prepare to file your taxes.
I hope you have a great day! Thanks for reading!
Brett
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