Tax Season For Business Owners

If you’re self-employed, the income shown on your tax returns is not always the same income used to qualify for a mortgage. Many business owners and sole proprietors write off expenses to reduce their tax liability, which lowers taxable income on paper. While that helps at tax time, it can make income appear smaller when applying for a home loan.

Mortgage underwriting looks at income differently. Lenders evaluate your ability to repay the loan, not just the number reported as taxable income. Because of this, certain deductions that reduce taxes but don’t actually reduce your real cash flow can often be added back during the qualification process.

This is commonly seen with items like depreciation, home office expenses, and other business-use-of-home deductions. These are legitimate tax strategies, but they are not always considered ongoing financial burdens when calculating mortgage eligibility. For many self-employed borrowers — especially sole proprietors — these amounts can typically be added back to help determine true qualifying income.

When these adjustments are made, borrowers may find that their qualifying income is higher than expected, which can improve debt-to-income ratios and strengthen overall loan approval potential. The key is not just what appears on a tax return, but how that income is reviewed and interpreted through mortgage guidelines.

A common misconception is that writing off too much automatically hurts your chances of getting approved. In reality, it depends on how the income is structured and analyzed during underwriting. With the right review, many self-employed borrowers are still in a strong position to qualify.

Disclaimer: We are not CPAs or tax advisors. This article is for general mortgage education only and should not be considered tax advice. Always consult a licensed tax professional regarding your specific tax situation.