[quote=patientrenter][quote=meadandale][quote=SD Realtor]How do you pay yourself? Showing W2 income makes it a no brainer.
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Unless you pay yourself a pretty low salary via w2 to avoid outrageously high payroll taxes…;-)[/quote]
If we want to accommodate gaming of income taxes by the self-employed, then why not have two categories of home loans – one that is deductible if the underwriting for income was based exclusively on income tax returns, and an alternative on which no interest is deductible and which can use income information other than tax returns?[/quote]
Assuming that not all self employed are gaming the system, the buyer is buying with a presumably post tax down payment and paying with presumably post tax money(or money that they will pay taxes on). Earnings may have a less predictable schedule,could come from widely spaced capital gains ect.
Let me give you a close to home example. In the last few years I have designed and built two homes which I am keeping. I did this with money that was properly accounted for and did not pay myself. Consequently I could extract plenty of down payment for future acquistions but might not qualify using conventional guidelines because, as I have said, I did not pay myself to work like a dog for more than two years. Within the current laws, taxes will not be due until I sell these homes(except on rental income). If I use the equity as a down payment to buy, how do I prove that I am not “gaming the system”? I am already penalized with higher rates and DP requirements because, although my work and lifestyle are legit, I can’t get past the same underwriter as some company man, w-2 earning slouch can. My eventual taxes for this time period will EXCEED that of many w-2 earners who are happily given loans I can’t get.There are also snowball effects on the tax advantage in favor of the w-2 buyer because of the lower rate. I am not crying too much BTW. Overall, I am not disadvantaged.IF that were the case I guess I could go get a “real job”. I can’t spell it out for other self- employed types ,for lack of understanding of how their businesses work, but I believe similiar patterns would emerge for many.
Other company employed w-2 earners/families supplement their life styles with unreported income also. Just because they qualify for the mortgage with a w-2 doesn’t stop cheating on taxes or selling dope or whatever.How do you decide with this in mind, who is gaming and who isn’t?
The self employed have enough penalties already. I can’t see that taking away the mortgage interest tax deduction can be done in a non-arbitrary manner unless it is across the board.
