Should I take the tax deductions or claim the income?

6 Replies

I am closing on my first SFR on December 20th. Financing has gone great with no problems. I went through a local bank, who offers portfolio products. I was talking yesterday about what I would need in order to purchase again in the future. I own 2 businesses, one of which is a small farm that I took a $10k loss on last year. I figured this was good because of the tax sabings. Now because of this loss it is hurting my ability to get future loans because of the debt to income. I currently own my home with about $50k in equity, plus 8 acres of raw farmland with $30k in equity. So this SFR is my 3rd mortgage. I can't take a HELOC on the land because it is land. Should I show a profit on the farm, pay the taxes and be able to qualify for more loans or go with a HML? Thanks for the advice,

I would claim the income and pay more taxes to make the tax return look great to the lenders so you have a higher borrowing power for low interest rate of 5%.

The cost of HML is much higher than the “extra tax” you pay.

@Dave Mosher

You should not lie on a tax return in hopes of qualifying for a larger loan/mortgage. Doing so may be considered mortgage fraud.

You may want to consider being less aggressive on expenses relating to your farm business by doing things such as taking regular depreciation instead of bonus depreciation/section 179 expense if applicable.

@Dave Mosher

I do not mean to ask you lie on the tax return.

I meant the same, take less expenses to make the tax return look good.

Many people write down as much expenses as they can try to minimize the tax, but this will hurt their borrowing power

I heard stories that people lie and didn’t report their actual higher self employ income to avoid higher tax.
But their lies on not reporting their higher income in fact does hurt their borrowing power.

thanks, yes basically I was wondering if I should be less aggressive. I don't want to lie, but was curious as to using a HML vs paying more tax. seems like it is pretty clear I should just be less aggressive, I appreciate everyone's insight!

And .maybe I should count my repairs as depreciation instead of straight deductions.  basically wait to advertise it for rent, so it wouldn't be deductible.

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