I need a mortgage, how do they prefer taxes to be filed?

5 Replies

I am a small time real estate investor flipping vacant land. This is my full time "job," only income and I am looking to get a mortgage for a house soon, but first I must file two years taxes to qualify. How do you full time investors (without another job) file taxes in which would be acceptable to use as income for a mortgage? Is there a better way to file the profits than just as short term capital gains? Can you somehow claim it as "self employed" instead of just capital gains to make it more official on paper? Are there any computer programs you recommend, or what forms do you use? Thanks in advance and sorry for the questions (I'm new to the tax world.)

Hey James, 

Do you have a business entity? If so, what type? Do you keep the books using an accounting software? 

Lenders will want to see your current profit and loss statement and balance sheet. This is easy to procure if you use an accounting software. 

If you're full time job is flipping vacant land, then your income is probably considered to be ordinary income. Do you hold the land for more than 12 mos before you sell it? If that's the case, it would probably be capital gains. Either way, ordinary income or capital gains it shows as business income and the lender won't treat one different from the other- from my experience. 

I'm happy to continue the dialogue here

Jake 

@Jacob Blackett great post and chock full of good information. I want to clarify one portion of it though: holding for 12 months has little (if anything) to do with whether or not his properties will qualify for capital gain treatment.

@James Morris since this is your full-time job and *I'm assuming* the income accounts for a substantial portion of your income from all sources, the activity will be reported on Schedule C and will be subject to your ordinary tax rates and self-employment tax, not capital gains. If you have little-to-no experience with taxes, I highly, highly recommend seeking professional advice from a qualified CPA.  

@Brandon Hall , thanks for pitching in! I guess I'm used to capital gains on my rental properties so that's where my thought stemmed from. My fix and flips that take longer than 12 mo don't qualify for cap gains so I see how land wouldn't as well- if it's his primary source of income. 

@James Morris , A CPA always pays for him/herself :)

Originally posted by @James Morris :

I am a small time real estate investor flipping vacant land. This is my full time "job," only income and I am looking to get a mortgage for a house soon, but first I must file two years taxes to qualify. How do you full time investors (without another job) file taxes in which would be acceptable to use as income for a mortgage? Is there a better way to file the profits than just as short term capital gains? Can you somehow claim it as "self employed" instead of just capital gains to make it more official on paper? Are there any computer programs you recommend, or what forms do you use? Thanks in advance and sorry for the questions (I'm new to the tax world.)

 If you are actively flipping land chances are it IS self employment income. And if you're not holding it a long time for investment use, you may want to consider keeping it all in a business entity. That will help show 1. your business intent 2. allow you to possibly draw a salary and open a 401k etc. 3. help banks treat you much more seriously.

Hey everyone thanks so much for the responses! I've been away from the computer all day... It is my only taxable income, and I haven't kept any properties for over a year so far. I have so far done it all in my name, but look to create a LLC very shortly here. I am just hoping to get a mortgage before having taxes as an LLC so I am needing to file for 2014, and 2015. So in the case that it was all in my name can I still file it as self employment income on Schedule C? That would be great, and I assume it would probably be easier to qualify for a mortgage if it were "income" instead of a capital gain as it seems like a more steady term to me. I will definitely be finding a Real Estate familiar CPA when I get ready to file, but just wanted an idea of what I was getting into. Thanks again!