Did my accountant screw up?

Question

Long story short............. under my schedule e he put 365 days fair rental days when I purchased the property 8/20/14 and was really only like 120ish fair rental days. Now I cant use any of that income under Fannie Mays guidelines. I called my accountant right away when I found this out and he stated it had to be done that way because of new program  or something the irs is using, taxes would not allocate properly or something. It has to say 365 fair rental days or I could not file my taxes properly. He tried explaining it to me but confused me.

Now my loan is falling though because they wont use that income and underwriters will not even look a the settlement sheet for poof that it is a glitch in the system... underwriter said to refile taxes and amend the return but loan is denied because of this and THIS HAPPENED 1 DAY BEFORE CLOSING after title work and appraisal is done.

Jimmy S. · Answer

this is off there website

https://www.fanniemae.com/content/guide/selling/b3/3.1/08.html

Partial or No Rental History on Tax Returns

In order for the lender to determine qualifying rental income, the lender must determine       whether or not the rental property was in service for the entire tax year or only       a portion of the year.  In some situations, the lender’s analysis may determine that       using alternative rental income calculations or using lease agreements to calculate       income are more appropriate methods for calculating the qualifying income from rental       properties. This policy may be applied to refinances of a subject rental property       or to other rental properties owned by the borrower.

If the borrower is able to document (per the table below) that the rental property       was not in service the previous tax year, or was in service for only a portion of       the previous tax year, the lender may determine qualifying rental income by using

• Schedule E income and expenses, and annualizing the income (or loss) calculation;             or
• fully executed lease agreement(s) to determine the gross rental income to be used             in the net rental income (or loss) calculation.

If ...

Then ...

the property was acquired during or subsequent to the most recent tax filing year,                                                    the lender must confirm the purchase date using the HUD-1 Settlement Statement or                      other documentation.

• If acquired during the year, Schedule E (Fair Rental Days) must confirm a partial                            year rental income and expenses (depending on when the unit was in service as a rental).
• If acquired after the last tax filing year, Schedule E will not reflect rental income                            or expenses for this property.

the rental property was out of service for an extended period,

• Schedule E will reflect the costs for renovation or rehabilitation as repair expenses.                            Additional documentation may be required to ensure that the expenses support a significant                            renovation that supports the amount of time that the rental property was out of service.
• Schedule E (Fair Rental Days) will confirm the number of days that the rental unit                            was in service, which must support the unit being out of service for all or a portion                            of the year.

the lender determines that some other situation warrants an exception to use a lease                   agreement,                                                the lender must provide an explanation and justification in the loan file.

Steve Babiak · Answer

I believe Freddie Mac requires rental income to appear on two years of tax returns before they will count it. Not sure about Fannie Mae, but sometimes lenders will become very conservative and use overlays so that the loan can be sold off to more potential parties. Meaning the more strict requirements from either Freddie or Fannie get used in underwriting the loan.