Learning how important a good accountant is

[Tyler Rowley]

When I did my 2021 taxes, I wanted to position myself as making enough money so that I could qualify to buy another investment property in 2022

I actually didn’t take all of my deductions for one of my houses so that I could show some income for it. I left a profit of $13,000. I was under the impression that, for example, if I had $80,000 in revenue and $80,000 in deductions, that house would show $0/monthly when a bank ran my debt/income ratio. 

But I recently learned that’s not how it works. I was working with a bank to do a refinance and he was showing me how he was calculating my debt/income ratio. I noticed he was giving me credit for $3,666/m for the aforementioned rental house. “But $13,000 divided by 12 months is only $1,083,” I said. “Why are you giving me credit for $3,666 per month?” 

He showed me the formula/equation they use to determine monthly income for a rental house. I had no idea it worked like that. 

If I showed a $0 profit for that rental house on my 2021 taxes, the bank would have looked it as $34,000/year. That blew my mind.

QUESTIONS: 

- First off, does all of this sound accurate? I hope I didn’t misunderstand what this guy was saying. 

- I am assuming this is one of the reasons people say real estate offers great tax benefits?

- Do different banks use different formulas/equations to determine rental property income? Does the one I stated sound standard? 

- One of my rental properties is a seller-financing deal I bought in 2022. Would the bank’s income determination for that house work the same way?

- I have another rental house of which I am on title, but my parents are on the mortgage. The income I take for that house is reported on a Schedule C (sole proprietor income). Should I figure out a way to get my name on the mortgage for that house so that I can take advantage of these income/tax benefits? What does that process involve? 

THANK YOU, tyler