Can't Finance Rental Home Due to Loss Reflected on Taxes

[Eric Villafana]

Happy Sunday!

I was recently in the process of gaining a pre-qualification for purchasing an investment home (buy and hold rental). 

Our starting target range ~$100K. I spoke with a lender who was referred to me by my real estate agent and he pretty much told me that I have zero chance of financing an investment property for the next few years. 

The primary reason given is that my 2016 tax return shows a loss of ~$10.9K on a rental home we own in Maryland.

I'm fairly certain that I miscalculated the depreciation on the house. We moved and began renting it out in August. The depreciation from August should only be about $4.5K but when inputting the date of business use, I put the purchase date (July 2014) versus the date we began leasing it. That resulted in the depreciation being counted for the entire year ($11.1K) versus just  a quarter of the year.

There are a couple questions I have.

1. If/when I amend my return, should I also look at adjusting the other expenses originally claimed (Specifics below): 

Advertising: $150   

Auto and Travel: $108,    

Cleaning and Maintenance: $2,363   

Commissions: $2,600   

Insurance: $ 306

Mortgage Interest: $6,572

Repairs: $360 

Taxes: $2,051

Depreciation: $11,131   

Other (replaced washer/dryer): $774  

-----------------------------

Total Expenses: $26,415

Bottom line from my Schedule

Rents Received : $15,430

Total Expenses : $26,415

Deduction for loss : (-$10,985)

-------------------------

If I amend and take out all things except for the taxes, insurance, commission and the correct depreciation, I would show a profit: 

Taxes: $6,572

Insurance: $306

Depreciation: $4,444

Commission: $2,600

----------------------------

Total Expenses: $13,922

Bottom line after proposed amendment

Total Rent: $15430

Total Expenses: $13,922

Profit: $1,508

I know this is a long post, so I appreciate and and all help. I tried to ask these questions to the mortgage broker, but he seemed less than interested in the matter.

Thanks in advance,

Eric Villafana

[Michael Cohen]

I been able to use rental income depends on a couple factors including, the loan type of your new home and have your vacating home. If you are looking to purchase using FHA, you cannot use the rental income if the home is less than 100 miles away. There are a few exceptions, such as employment-based move or if you're trying to buy a larger house due to family size increase, etc.