What is the best way to file taxes to obtain a Mortgage? PLS HELP

Question

Hello BP users... As always I am here for a bit of advice from all of you that know more than me!

I am looking to get a 30 year fixed mortgage shortly (construction to perm to be exact.) and am trying to find out the best way to file 2016 taxes to increase chances of approval. I am a full time real estate investor, and so far have only dealt with properties in my personal name (no LLC or company.) When I took my tax returns to a CPA last year he filed them all as Capital Gains on a form 1040.

When shopping for a mortgage earlier this year I ran into a couple local banks that wanted 3 years of returns due to the way they were filed. Do any of you guys have a better way I should file my 2016 taxes to look more "legit" to a bank that will make getting a mortgage easier as soon as filing? Any help would be great as I am wanting to get into my own place as soon as possible! Note I will be putting the land as well as cash to equal %20 (or more if required.) in order to get good terms.

Thanks in Advance!

Steven Hamilton II · Answer

@Colton Joseph,Shoot me a PM or a phone call and I'll explain all of the issues for you.

Stephanie Medellin · Answer

I'm certainly not a tax expert so hopefully someone like @Steven Hamilton II can add to this, but yes if you buy and sell real estate as a business I believe you can be considered a "dealer" to the IRS, and you would file the income on Schedule C (self-employed) if you're a sole proprietor.  You would have to pay self employment taxes on this income, but you would still file your taxes with form 1040.

This is probably not the best way to file for tax purposes, as you will most likely owe more to the government each year.  I think most people want to avoid being considered a "dealer."

http://journal.firsttuesday.us/real-estate-investor-or-dealer-the-irs-wants-to-know/27822/

One year of filing as self employed is not going to help you be approved for a mortgage.  You're going to need at least two years of tax returns as a self employed.

@Colton Joseph

Steven Hamilton II · Answer

The best way is to file it the correct way which is not what was done. You NEED to talk to someone about tax planning. You need to fire him.

You definitely need someone qualified, does not have to be a CPA, could be an Enrolled Agent or an attorney. Just make sure they specialize in tax and have significant experience dealing with real estate investors.

Here is a great list of questions to ask a potential accountant:http://www.biggerpockets.com/forums/51/topics/70447-questions-to-ask-a-cpa

Also check out the www.NAEA.org page in your search. It should help you find someone local. If someone comes to me, I'll send them your way.

If you need help in your search or want to verify something don't hesitate to ask.

For example: I have clients worldwide and things are just as easy as I e-mail them, talking on the phone. I even use Skype and TeamViewer to communicate with clients so I'd highly recommend looking for one of the best with great references that interviews well with you.

So look for someone you can connect with that works out for your situation.

Feel free to ask here if you have questions

Colton Joseph · Answer

Thanks you VERY much for the link as it had a lot of useful information! I honestly never heard of a "dealer" when referring to real estate. I will definitely have to find someone much more experienced when it comes time to file this year as it looks like the CPA I used had no idea when it came to all of this. I suppose a "dealer" would be charged normal tax rates according to the typical income brackets correct?

And I agree thats what I was afraid of on the ability to get a mortgage after filing this years taxes due to the way mine were filed last year. Hopefully a portfolio lender will bend a bit with the right amount down, but i'm not too certain!

I'm very young and still got a heck of a lot to learn so everyone here is greatly appreciated!

Thanks again @Stephanie Irto

Colton Joseph · Answer

Thanks for the replies! Yes @Stephanie Irto I should have been a bit more clear... I buy and sell vacant land and do not have any income properties. Thanks for the input @Steven Hamilton II Thats honestly what I had feared, but I was a late filer filing for my first time so I didn't ask the appropriate questions, and was just in a rush to get them done (not smart!)

I suppose these should be filed as self employment taxes? Would the same form be used, but filed as business income instead of capital gains?

example for 2016...

I buy a vacant lot 1/1/16 for $20,000 and sell on 6/1/16 for 42,000...

Also buy a vacant lot on 1/1/16 for $40,000, and sell on 6/1/16 for $80,000

Total income for 2016 is $62,000 (minus closing costs.) Should this be filed on a 1040? If not what form should be used? Do I still qualify for the standard deduction?

Thanks again for your knowledge!

Stephanie Medellin · Answer

@Colton Joseph  Did you sell all of your properties?  I've always thought capital gains as they pertain to real estate are more of a "one time" type of income obtained from selling property.  Selling a property one time wouldn't be considered any type of consistent or stable income.

Do you have rental income from your properties claimed on schedule E?

What is the best way to file taxes to obtain a Mortgage? PLS HELP

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