Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Buying & Selling Real Estate
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated about 5 years ago on . Most recent reply

Account Closed
  • Peoa, UT
2
Votes |
8
Posts

Can I pay back taxes to prove self employed income? Or get a W2?

Account Closed
  • Peoa, UT
Posted

Hey guys! I just wanted to run this by y'all to see what you think- any input at all is very much appreciated!! Happy Holidays!!!

Here's the scenario- let's say I have no proof of income. Can I file two 1040s and pay the back taxes for 2018 as well as taxes on 2019 in order to prove income to buy another property? If I file those 1040s and have 2 years of self-employment income then will that sail smooth with underwriting or will that be kind of sketchy? If my bank account can confirm cash deposits and I can provide an income and loss report and then pay the taxes on the income will that be good enough? 

The ideal situation would be to buy another primary residence and have 75% of rental income on our current residence covering our current mortgage (and then some) so that we can cancel out our current residence and just rent it out. We can move out and bring in $2,000 a month while paying a mortgage of $1,200 (75% of 2k is $1,500) so I assume that would just cancel out as far as DTI goes..? Then we'd buy another duplex for around $200k and have an outstanding mortgage of around $1,500 if we went 3% conventional, then refi later on after renovations like we've done with our current residence.

On our new property, if we can rent out one side of the duplex for $1,000/mo. to get 75% ($750) counting toward income, then we'd just need to satisfy $750 in income for the rest of the debt, right? Or rather, prove income that makes that $750 40% or less to satisfy DTI ratio... or am I totally off? If we prove $2,000 of income, that would have our DTI ratio at 37.5%, is that realistic or would we really need to prove income on the entire $1,500 of the new mortgage (assuming our current one cancels out with the 75% of it's rental income) and have $1,500 be 40% or less of our total income putting us in the spot where we'd need to have 2 years of taxed income totaling $4,000 per month to have a DTI ratio of 37.5%?

Overall my questions are... 

1. Can we prove income for a mortgage by paying the last 2 years of taxes and backing it with proof of deposits in our bank account? 

2. Do we need to prove income to settle the DTI ratio with the entire mortgage of our next primary residence, or is it safe to rely on 75% of rent from the other unit to count toward income thus lowering the amount of taxed income we need to provide (from 4k to 2k a month) in order for our DTI to be below 40%?

3. Would this even be worth it? I mean, wouldn't it be easier to just get a job and provide 2 pay stubs over 30 days proving $4,000/mo W2 income? Even if we just proved income on 2k/mo over two years that would be like $8,000... seems like I'd be better off getting a W2... but would that even work? 

Most Popular Reply

User Stats

3,693
Posts
4,438
Votes
Natalie Kolodij
  • Tax Strategist| National Tax Educator| Accepting New Clients
4,438
Votes |
3,693
Posts
Natalie Kolodij
  • Tax Strategist| National Tax Educator| Accepting New Clients
ModeratorReplied

Welp any income you earn hobby or otherwise is taxable to the IRS. 

So I would go back and file those returns (or amend them if they were filed but didn't include the car income) to report it accurately. 

Typically people want it to be a business not hobby as then you can deduct any losses that are incurred by the business, if it's a hobby (if the IRS sees losses for multiple years they may reclassify it as such) and then witha hobby you cna't claim a loss- you can only reduce your income from the hobby to $0. 

Either way- I'd report it so you're reporting correctly. 

In terms of lending- If you have 2 years of self employed taxes they're going to take the average of those 2 years earnings and that's what they'll utilize to qualify you. 

Hopefully a lender will chime in here with more input on that side of things. 

business profile image
Kolodij Tax & Consulting

Loading replies...