I have often said that growing a business has many similarities as raising kids.  Every business owner knows that you must spend countless hours helping to form and support your new “baby”.  Part of that support means that a new business has no credit until you help build up business credit.  And that is where today’s blog takes us.  How do you determine rental income when a borrower has personally financed a property, but that property is shown on IRS form 8825 and not the schedule E.

First let’s start with what is an IRS Form 8825.  When a business owns real estate such as a one to four family property or a commercial property, it’s reported on the 8825.  Then it flows to either the 1065 / 1120S / 1120 business form.  Basically, the 8825 acts the same way as a Schedule E would if you personally own real estate.

In this week’s video blog, we are going to review the guidelines, required math, and how to handle the outcome (net income or net loss) when your selling agency is either Fannie Mae or Freddie Mac.  Since Freddie Mac guidelines instruct us to treat the personally financed properties in the same manner as non-personally financed properties most of the focus of the blog is on using Fannie Mae rental form 1039.  We will break down the following four key steps outlined in Fannie Mae B3-3.1.08 dated 2/28/2017.

Step 1 determine if you are going to need rental form 1039

Step 2 review the calculations needed on the 8825 (example: start with rents subtract expenses, etc.)

Step 3A  If the calculations result was net income, you have to submit a “net zero” income.

Step 3B If the calculations result in a net loss the borrower must qualify with the full loss

Step 4 Adjust the borrowers K-1 based so that an income or loss is not duplicated in the income calculation

At the end of the video blog I go over some exciting improvements (and new discounted price) for our training program. If you’re not part of our training program email us  contactus@uber-writer.com and we will invite you to our next monthly webinar to hear about the changes first hand!

Our ongoing continuing education program is geared for underwriters, processors  and originators to keep their “A” games well…. an “A”

Check out the video blog and feel free to comment or ask questions!