Self-Employed, Business Mileage and Mortgages

When tax time comes around, we get a ton of self-employed tax questions regarding how different scenarios impact getting approved for a loan. We wanted to summarize how the deduction for mileage is viewed through the eyes of lending.

Please consult a tax professional with tax preparation questions.

Automobiles used for business purposes have an option to deduct expenses based on actual business miles driven. This lowers tax liabilities by decreasing stated profit, which can affect the loan amount for which a person can get approved.

There is, however, a way to get some income added back for your loan’s approval.

The 2017 mileage deduction rate is 53.5 cents per mile. Part of the amount-per-mile deduction is allocated for depreciation, which is an accounting loss but not a cash-flow loss. When analyzing business income, well-versed lenders understand this and will add back the expenses taken for depreciation to the bottom line, allowing for more qualifying income than the profit shown on the tax return.

See why understanding this second layer of business mileage is important? More qualifying income means a possible loan approval for a higher amount.

According to the IRS, 25 cents of each 53.5 cent-per-mile deduction is allocated to depreciation. Let’s apply these numbers.

A client who deducted 10,000 business miles on a tax return would show a $5,350 expense (10,000 x 53.5 cents). We would add back the portion allocated to depreciation to the profit of the business in the amount of $2,500 (10,000 x 25 cents).

This article is only intended to explain how the results apply to mortgage lending from an income-calculation perspective and should not be used for tax-filing purposes.

If you have any questions about the mortgage implications of this, please call my team at Florida Mortgage Firm at 813-707-6200. Florida Mortgage Firm is an Equal Housing Lender, NMLS #289323 | NMLS #294701.