Can we add back depreciation and Sec. 179 expense deduction in calculating debt to income ratio?
Post date: May 31, 2011 7:28:36 PM
Mon Sep 8 2008, 14:00
My husband is self employed and started his own business two years ago. He had quite a bit of Sec. 179 expense deduction when starting his own business. So, the lender is looking at our combined AGI for the past two years (I have a w2 job). Would we be able to add back the depreciation & Sec. 179 deduction taken on his schedule C to decrease the debt to income ratio?
Yes. As a rule of thumb, Fannie & Freddie guidelines allow self-employed borrowers to add back depreciation (I don't believe any distinction is made between Sec 179 depreciation and regular), self-employment tax, depletion.
Here is a link to FNMA Form 1084, the form used by underwriters to analyze income for self-employed borrowers. It's a bit cryptic, so be sure to download the instructions if you want to work up your qualifying income your self.
You will need all of the tax returns supplied to underwriting to complete the analysis.