Please Don’t File Your Taxes – If…
TAX DEADLINE = MAY 17th
B/c of COVID, the filing deadline for income taxes was extended from April 15th to May 17th this year, as most everyone knows.
We typically send out this reminder in March, but I waited this year until now b/c of the deadline extension.
WHEN BUYERS SHOULD NOT FILE TAXES
We like to remind borrowers who are currently making offers or who have just made an offer to NOT file their tax returns.
Borrowers should file taxes by all means, but we recommend filing an extension now (if making offers) and then filing taxes when the next deadline hits.
Filing taxes shortly before a transaction is slated to close can either delay a transaction and/or kill it altogether.
For self-employed borrowers, if their income is lower in the most recent tax year, their ability to qualify can be threatened.
We have seen this happen numerous times this year in fact – where self-employed borrowers filed taxes with substantially lower 2020 income (relative to 2018 and 2019) and it pushed them out of qualifying range.
In many of those cases, if they had filed extensions instead, they would have been fine because lenders are often willing to accept previous years’ tax returns when extensions are filed.
I should add though this year is a bit different b/c of COVID concerns; lenders sometimes require letters from CPAs or some type of proof that self-employed businesses are still viable, ongoing and cash-flowing whether taxes were filed or not.
The other risk from filing taxes is a delayed closing date.
This is because lenders often require proof from the IRS that the taxes in the loan file match the tax returns that the borrower filed with the IRS (to prevent fraud). It can take as long as six to eight weeks to get that proof from the IRS if taxes were recently filed.
WHAT IF TAXES ARE OWED?
If taxes are owed, they need to be paid prior to close of escrow in most cases, whether extensions or actual tax returns are filed.
I will elaborate on this more in tomorrow’s blog.
ASK YOUR FRIENDLY NEIGHBORHOOD LENDER (hopefully JVM 😊) PRIOR TO FILING
Anyone looking to buy a home right now and confused about whether or not to file taxes should reach out to their lender prior to filing.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167