Introduction
This section provides an overview of IRS tax forms that are relevant when assessing income for self-employed individuals applying for a mortgage.
IRS Forms Quick Reference
When you’re applying for a mortgage, and you’re self-employed, lenders will look at various IRS forms to understand your income. These forms are official documents that you’ve likely filed with your tax returns. They give a snapshot of your earnings and financial activities over a year. Here’s a breakdown of these forms and what they represent:
– **Form 990**: This form is used by organizations exempt from income tax. It’s not typically applicable for individual borrowers unless you’re involved with such an organization in a way that impacts your income.
– **Form 1040**: The U.S. Individual Income Tax Return is a standard form most people use to file their annual tax returns. It provides an overview of your total income for the year.
– **Form 1040, Schedule B**: This part of your tax return details interest and ordinary dividends you’ve received, which could include earnings from savings accounts, stocks, or other investments.
– **Form 1040, Schedule C**: If you’re a sole proprietor, this form shows your business’s profit or loss. It’s crucial for lenders to understand how much your business has made or lost during the year.
– **Form 1040, Schedule D**: This form reports capital gains and losses from selling assets like stocks or property, which can affect your overall income.
– **Form 1040, Schedule E**: For income or losses from rental properties, royalties, partnerships, S corporations, estates, or trusts, this form gives the details.
– **Form 1040, Schedule F**: If your business involves farming, this form shows the profit or loss from those activities.
– **Form 1065**: Used by partnerships to report their income, deductions, gains, losses, etc., this form doesn’t directly show your personal income but is essential for understanding a partnership’s financial status.
– **Form 1065, Schedule K-1**: This form details your share of a partnership’s income, deductions, credits, etc., crucial for calculating your total income.
– **Form 1099-A**: It reports the acquisition or abandonment of secured property, which could affect your financial situation.
– **Form 1099-C**: If you’ve had debt canceled during the year, this form reports it, as canceled debt might be considered income.
– **Form 1099-DIV**: This form shows dividends and distributions you’ve received, adding to your income.
– **Form 1099-MISC**: Miscellaneous income, such as rent or payments received for services performed, is reported here.
– **Form 1120**: Corporations use this form to report their income, gains, losses, deductions, and credits.
– **Form 1120-S**: Similar to Form 1120, but for S corporations, showing the corporation’s financial activities.
– **Form 1120-S, Schedule K-1**: This form reports your share of an S corporation’s income, deductions, credits, etc.
– **Form 2106**: Employee business expenses, which can be important if such expenses impact your net income, are reported here.
– **Form 4506-C**: This form is used to request a transcript of your tax return, allowing lenders to verify your income directly with the IRS.
– **Form 4797**: For reporting sales of business property, which might impact your financial status.
– **Form 6252**: If you’ve sold property and are receiving payments over time, this form reports that installment sale income.
– **Form 8825**: This form details rental real estate income and expenses for partnerships or S corporations, impacting your share of the business’s income.
– **Form W-4**: The Employee’s Withholding Allowance Certificate influences how much tax is withheld from your pay, affecting your take-home pay.
Recent Related Announcements
A recent announcement, Announcement SEL-2020-07, issued on December 16, 2020, relates to this topic. While it doesn’t change the forms required, staying informed about such announcements is crucial as they might affect how your income is assessed.
References
For more details, visit IRS Forms Quick Reference of the Fannie Mae Selling Guide.