Introduction
This section provides information about how income or loss from selling investments or property (reported on a tax form called IRS Form 1040, Schedule D) affects someone’s ability to qualify for a mortgage.
Overview
The IRS Form 1040, Schedule D, is a tax form used to report profits or losses from selling investments or property. Typically, money made from these sales happens just once and shouldn’t normally be thought of as regular income that you can count on every month.
Calculating Borrower Cash Flow from Schedule D and Required Documentation
However, if someone has made money from these sales for the last two years consistently—like if they’re in a business where they regularly sell things for more than they bought them for—this money can be considered when figuring out their regular monthly income. But, the person must also show they have more property or things they could sell if they needed money to help pay their future mortgage payments.
Below, you’ll find what’s needed to figure out cash flow from Schedule D and what documents are required.
– **If the money made regularly comes from selling business property,** the lender needs to see a specific tax form (IRS Form 4797) that shows these sales are a regular thing.
– **If Schedule D includes payments received over time for something sold (also known as installment sales),** the lender needs to see:
– The tax form for installment sale income (IRS Form 6252).
– The agreement or contract proving the person selling will keep getting payments for at least three more years.
– **If the money made from the principal payment and interest from selling something over time (installment sales) is a one-time thing,** this amount shouldn’t be counted in the person’s regular money flow.
It’s also important to know that losses shown on IRS Form 1040, Schedule D, don’t need to be considered in the borrower’s income or debts, even if these losses happen more than once.
References
For more details, visit Income or Loss Reported on IRS Form 1040, Schedule D of the Fannie Mae Selling Guide.