Issue with taxes on cash out refinance

[AJ Meyer]

I applied for a cash out refi on my primary residence. Good rate. Slightly higher monthly payment than what I currently pay, but a massive cash out amount due to appreciation, that I intend to use for REI.

I still haven’t filed last year’s tax return, so all I was able to show the lender is my 2 previous returns and last year’s P&L.

The lender (more specifically the underwriter) came back and said that even though I made more than enough money to carry the new loan, I won’t be approved, UNLESS I show a much higher NET CASH FLOW. Meaning I am not allowed to write off my perfectly legal business expenses that I write off every year, and as a result have to pay much more in taxes for last year.

Question: do all lenders look at net cash flow as the main criteria for someone’s ? Why can’t they just look at someone’s income? Or aggregated gross income?

Is there any way out of this for me?

[Natalie Kolodij]

Like others have said filing a false tax return is illegal. 

But also- Your P&L likely won't have depreciation on it (which is often what makes a rental show a loss on paper)

I'm confused as to why if it's making "More than enough" money they are saying you'd need higher cash flow. 

It sounds like the DTI may be too high and the property would need to cash flower better to cover $X of additional new debt.