When evaluating commission income that represents 25% or more of the borrower’s total annual employment income, the lender must consider certain tax deductions reported on IRS Form 2106 (Employee Business Expenses) when conducting the cash flow analysis:
Out-of-pocket, unreimbursed business expenses — These expenses must be deducted from the borrower’s income.
Actual expenses for a leased automobile, rather than the standard mileage rate — The lender must analyze the “Actual Expenses” section of IRS Form 2106 to determine the amount of the lease payments, and make sure the lease expense is counted only once in its cash flow analysis, either as an expense on IRS Form 2106 or as a monthly obligation.
If a borrower claims a “standard mileage” deduction, the business miles driven should be multiplied by the depreciation factor for the appropriate year, and the calculated amount added to the borrower’s cash flow.
If a borrower claims an “actual depreciation expense” deduction, the amount the borrower claimed should be added to the borrower’s cash flow.
The table below provides references to the Announcements that have been issued that are related to this topic.
|Announcement SEL-2015–07||June 30, 2015|