Rental income on tax return

[Nelson Del Castillo]

Hello all, I own and live in a legal 2 family home with an in law apartment. I receive a total of $2370 in rental income a month. If I add this rental income to my tax return will it be counted as income when applying for a conventional mortgage? Thanks in advance any input is appreciated.

[Chris Mason]

I'll skip the math, but yes this will be a factor in your DTI.

If your tax returns say that the property bleeds money, it'll kill your DTI no matter how much you are "actually" getting in rent from the tenants.

If your tax returns say the properties lose a little each year because of depreciation, that'll generally be calculated as cash flow positive. 

Basically, the LESS your tax returns look like your ACTUAL income/expenses from the property, the more a REI is typically screwing herself or himself when it comes to getting the next mortgage (assuming they are buying good investment properties).

People that are honest when they file their taxes, their DTIs tend to go DOWN with each property they buy, so DTI is never an issue.

I've got few guys out there "perpetually preapproved" because I've done their mortgages before, credit is solid, I'm not worried about DTI, all they need is the cash to close, and I've taught them how to calculate that so we aren't wasting anyone's time.

So they open the PDF where I've left purchase price, down payment, and date blank, put in the correct numbers, and it's already got my signature at the bottom & I'm ready to vouch when out of the blue a listing agent calls about someone I haven't spoken with in six months that just wrote an offer with "my" preapproval included in it. What these individuals, that I've given blank checks to with my signature at the bottom, have in common is that they are honest with the IRS.

TLDR: Just do your taxes honestly!