Leases or Form 1007 or Form 1025. When current leases or market rents are used on Form 1007 or Form 1025, the lender must calculate rental income by multiplying monthly gross rents by 75%. (This is called the “monthly market rent” on Form 1007.) The remaining 25% of gross rent is offset by vacancy losses and ongoing maintenance costs. When a borrower has a history of renting the subject or other property, rental income is generally reported on Form 1040 of the IRS, Schedule E of the borrower`s personal return, or on the rental real estate income and expenses of a partnership or S Corporation form (IRS Form 8825) of a business tax return. If the borrower has no history of leasing the property or if, in some cases, the returns do not accurately reflect the current income and expenses of the property, the lender may have the right to use a fully executed outstanding lease. Examples of scenarios justifying the use of a lease are If the property is not currently leased, leases are not required and Form 1007 or Form 1025 can be used. A current signed lease agreement can be used to complete a Federal Income Tax Return if the property was out of service for a certain period of time in the previous year. Calendar E should support this approach by reflecting a reduced number of days of use and related repair costs. Form 1007 or Form 1025 must support the proceeds of the lease.

If the borrower owns real estate – with the exception of the leased property – the lender must document gross (net) monthly rental income with the borrower`s latest federal income tax return, which contains Schedule 1 and Schedule E. Copies of the current lease can be replaced if the borrower is able to document a qualifying exception. See the partial or no history vote for tax returns below. If the property has been in possession for at least one year but there are less than 365 days of fair rental on Schedule E, an up-to-date signed lease agreement can be used to supplement the federal income tax return; Or in order for the lender to determine eligible rental income, the lender must determine whether or not the rental property has been in service throughout the fiscal year or for part of the year. In some cases, the lender`s analysis may establish that the use of alternative rental income calculations or the use of leases to calculate income are more appropriate methods for calculating qualifying income for rental properties. This directive may apply to the refinancing of a rental property or other rental properties of the borrower.