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Your Tax Write-Offs Could Affect Your Ability to Get a Loan: Here’s How

Amanda Han
4 min read
Your Tax Write-Offs Could Affect Your Ability to Get a Loan: Here’s How

Every year as we get ready for tax season, I put together a checklist for my clients to help them get organized for tax season with common questions such as: Did you get a W-2? Did you pay mortgage interests? Did you have any education expenses?

One question that I added to the checklist several years ago is: Do you plan on obtaining a loan or refinancing? From time to time, a client will give me a puzzled look and wonder why I would ask that question as part of their tax filing process. After all, that is typically not a question asked by a lot of CPAs.

The Story

I have my client Nancy to thank for this question. Several years ago, I met a really sweet lady named Nancy at an apartment investing boot camp where I was teaching. Nancy had been a real estate investor for many, many years, but she did not take advantage of a lot of the tax write-offs she was legally entitled to. After working on some tax planning strategies with her, Nancy decided that she wanted us to also prepare and file the income tax returns for her and her LLCs.

The result was amazing, if I do say so myself! After going through her expenses and writing off all her rental expenses, education expenses, travel costs, and improvements on her properties, Nancy was looking at a huge refund on her taxes. In fact, Nancy’s refund that year was close to $20k. We were both extremely pleased with the results. Before long, Nancy was telling me about her plans to use the tax refund as a down payment on a new rental property that she came across in Memphis.

Related: Appealing Property Taxes: Why Investors Should Delegate This Task Out

You can imagine my surprise when my office receptionist came running into my office to tell me that Nancy was on the phone yelling about how mad she was. What could have possibly made her so mad? After all, didn’t she just get a huge tax refund from the government?

How Tax Write-Offs Can Affect Loans

After speaking with Nancy, I quickly found out the reason behind her anger. After making an offer on the Memphis rental, Nancy went to her lender to ask for a loan. She informed her lender that she would be putting a $20k down payment on this new property and was requesting a loan for the difference. To Nancy’s surprise, the loan broker took one look at her tax return and told her that she was not going to be eligible for the loan because her tax return showed a large loss on her income activities.

With all the legitimate tax write-offs, Nancy’s taxable income had gone down to almost nothing. With little net income to show on the tax return, it made it almost impossible for Nancy to get a loan from any bank. The good news is that Nancy was ultimately able to get a loan from a small, local bank. The bad news is that the rate and terms were not as good as what she was hoping for.

After my experience with Nancy’s loan issues, I started to think about what a huge problem this could be for our investor clients. From that point on, I started to ask all of my tax return clients if they were looking to get loans in the near future. I learned that knowing this can help us to be proactive in looking at how we file certain tax returns.

The truth is that, for the most part, any expenses we claim on the tax return can save you on taxes, but it can also reduce a person’s borrowing ability. However, there are certain things that can be done to strategically preserve a tax write-off without compromising one’s borrowing ability. For a lot of our clients, we recommend taking a team approach where we work alongside their loan broker to figure out the optimal way to report things on their tax returns. This is because there are certain items that are tax deductible but do not decrease your income for loan purposes.

Related: 3 Reasons You Should LOVE the Home Office Tax Deduction

An example of such an item could be depreciation expense. For example, a good lender will know that depreciation expense is generally a paper write-off only, and even though it decreases one’s tax bill, it will not reduce income for debt to income ratio calculations.

Another example could be discretionary retirement account contributions. I have worked with lenders who can help investors to add back certain types of retirement account contributions to income for loan purposes while preserving the tax deduction benefits.

In fact, whether you write off your car’s actual expenses or take the standard mileage deduction, it may have an impact on your borrowing potential as well.


The lesson I learned in my experience with Nancy is that we can’t just plan ahead for taxes; we must also plan ahead if we are looking to get loans. It is important to understand how much income is needed in order to obtain a loan as we begin the tax preparation process so that we can start with the end in mind.

As we get into the tax filing season, be sure to talk with your CPA ahead of time to let them know if you are looking to get a loan. This way, they can help you to prepare your taxes strategically to save on taxes and preserve your borrowing potential.

Have you ever run into issues when applying for a loan due to tax write-offs? Will you be taking this information into account come tax season?

Leave me your questions and comments below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.