So the story is: my wife is a farmer, who made next to nothing last year but has several thousand in expenses and deductions. I make 6 figures, and would like to take those deductions by filing jointly. We are also trying to buy an expensive property and thus need to maximize our dept to income ratio for the mortgage application. Could I apply for a mortgage based on my income alone, and still take the deductions on my taxes? File jointly / apply solo? Who has the last word? My CPA asked me to consult with lenders.

Comments

FourWayFork t1_j6neqzu wrote on January 31, 2023 at 3:55 PM

The two don't have anything to do with each other. File your taxes jointly, period.

Whether you can apply for a mortgage solo is going to have to do with the laws of your state and the policies of your lender - it won't have a thing in this world to do with whether your tax return was joint.

Unless your wife has bad credit, the fact that she has no income shouldn't hurt you on your loan application. There are plenty of households with stay-at-home spouses that have joint mortgages.

Having your wife on the mortgage is probably going to be a requirement if you want to have her on the deed. And you want to have her on both - otherwise if you die, things potentially get difficult, depending on your state. If she is on the deed and the mortgage, then she can just keep making payments (if she wants to and is able to) and the loan can't be called by the bank. It also doesn't have to go to probate. (And again, laws there will vary from state to state.)

rambotron OP t1_j6ngpy8 wrote on January 31, 2023 at 4:07 PM

Thanks for the response. Yes, we will file jointly. The question is whether I account for her deductions (which are considerable but this drops my net income by a noticable amount). I was hoping then to take the deductions on my taxes and still apply for a mortgage solo using my net income only. Excluding her deductions this year.

FourWayFork t1_j6njuld wrote on January 31, 2023 at 4:27 PM

Okay, I think I understand now what you are saying.

She had business losses on her farm business. So say she had $20K in revenue, but $25K in business losses that you could write off. You're wondering if writing off her losses is going to hurt you on the mortgage application and you're thinking it would be better to either (a) file your taxes separately (so she can separately deduct her losses), (b) not write off the losses at all and pay taxes as though you had no losses, or (c) somehow have the bank not consider her income/losses and only look at your income.

My first thought is to keep in mind that concealing your true income/losses from the bank in the mortgage process is fraud. If you show them her income, but camouflage her losses to make her business look more profitable than it is, that's bank fraud. (It's basically what New York is accusing Donald Trump of.) So I would certainly not do (b).

I don't think (c) is going to work because you're going to give them your 1040 whether you are applying together or not - they are going to see your combined income.

I don't think (a) would work because business loss only gets deducted against business income, so her losses shouldn't reduce your AGI. You're better off being able to pay the lower tax rates.

DeluxeXL t1_j6nfcgx wrote on January 31, 2023 at 3:59 PM

>We are also trying to buy an expensive property and thus need to maximize our dept to income ratio for the mortgage application

Pretty sure you want to minimize DTI ratio to give more room to the new debt you're planning to take.

Is your wife taking on debts for the farm? Losses and debts don't mean the same thing.

rambotron OP t1_j6nfux4 wrote on January 31, 2023 at 4:02 PM

Sorry, minimize is correct. Losses are the crops. These are expenses. They shift my net income by over 10k.