the Creative Class | Tax Time and seeking Home Mortgages

Image-11In Richard Florida’s “Rise of the Creative Class”  he states that human creativity is the rising and defining feature of our economic life today. Creativity is essential to the way we live and work. It is associated with the rise of new work environments, lifestyles, associations and neighborhoods, which in turn are conductive to creative work. Creativity can be both social and individual and often stifled by organizations.  This becomes part of the energy behind the entrepreneurial spirit and desire to pave one’s own path. The creative class is less inspired by money and more inspired by experiences and intrinsic rewards. Having been to recent events and Design Salons in the River Arts to West Asheville to the Five Points neighborhood you will see this “Creative Class’ first hand. The growth of individual creative companies in our little town as it offers the choice for personal freedom and an active and inspired lifestyle.

Given the creative culture of Modern Asheville Real Estate we tend to attract clients who are self-employed entrepreneurs moving here for that lifestyle choice. Unique home buyers looking for properties that showcase their sense of self. These samecordell-house-shipping-container-home_1 folks also have unique challenges when it comes to tax time and qualifying to purchase a home. These self-employed borrowers tend to take a lot of deductions to reduce their taxable income. While this reduces their tax liability, it also reduces their income used to qualify for a mortgage. All loans require self-employed borrowers to provide a minimum of two years recent personal and business tax returns. Anyone who is self- employed will want to show as much income as possible to use as qualifying income for a mortgage. 

Be mindful of which line on your tax return your tax preparer reports income. If you are an owner of a Corporation and/or a Sole Proprietor business the income may be reported on several different lines of your 1040 like the Schedule C, Schedule D or Schedule E. If you pay yourself a regular wage then you may show W2 income as well. When qualifying for a mortgage, in most images-3instances, income from a self-employed borrower will only be used if the income is reported on the same line of the tax return for the past 2-years. If a self-employed borrower reports business income through their Corporation on their Schedule E one year and the next year reports income from the same source through their Sole Proprietor business on a Schedule C, a mortgage banker/broker will most likely not be able to use that income when qualifying the borrower. In most instances, income generated from self-employment needs to be reported on the same tax line for 2-years. If you are applying for a mortgage during tax season, make sure your banker or broker looks at your prepared taxes before filing with the IRS.

Having said all that Kelly and I both have to finish preparing our own similar taxes this weekend. Hopefully, the impending rain will help us stay focused on the task. Cheers to you!

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