Getting approved to refinance 2018 while 'taking a loss' in 2017

[Account Closed]

Without going into the weeds on the 'why', Last summer I quit claim'd a non-performing rental (Mayflower) taken Sub2 (with a basis of $65k) back to the original seller, in exchange for them forgiving $42k in notes for 4 other properties purchased from them, due to them in 2020. I then immediately sold one of those other properties (Kingsbury) which previously had a note due for $27k, and walked away with a check for $37k, all other variables aside, I assumed that i made a profit.

Fast forward to tax time / refinance time, my accountant is telling me that the profit from Kingsbury, was actually a loss associated with quit claiming Mayflower back to the sellers. Even though i physically took in $90k from the sale of real estate in 2017, my taxable income is $20k.. which by tax returns alone, looks like sh!t compared to the previous two years. I'm perfectly fine with paying less taxes, but my concern is my ability to cash out refinance my rentals and buy a personal residence this year. 

My question is, do lenders look only at the tax returns, or would they take the circumstances/HUD-1s into consideration when approving loans?

[Jay Hinrichs]

UGH.. this is whats good and bad about our lending these days.. while its cleaned up the Liar loans etc its hampered us 1099 guys..

and the more complicated the tax return the harder it is for conventional lenders to get through it.

so it really depends on your RMLO and their underwriter if they will look through it and add back in to your bottom line.

for a few years there my tax's showed a loss and there was no WAY I could get a loan until I got my TAXABLE income up to a level that worked for them.

I then was buying a townhouse in Vegas last year for 300k and I could NOT get a loan on that as my tax returns are about 4 inches thick and no underwriter could really go through it .. so I had to pay cash.. so there I am more than enough cash in the bank to pay for it.. I sold all my rentals so I only had my primary and NOPE could not get a loan.. totally frustrating..

on the other hand my commercial bank saw fit to give me 6 million in construction loans LOL.

so my short answer is I think your in trouble with only 20k taxable income on the convential side and maybe a portfolio lender will help you.. just like my commercial lender does me.. So after that nightmare .. I decided I will no longer borrow money and just pay cash unless they are construction loans.