Deciphering Tax Returns Part 2: Form 1040, Schedules D, E & F

Tax returns don’t show cash flow; they show taxable income. What you need to know is cash flow because that is how your loan is paid back. With the process outlined in this session and the free Lenders Tax Analyzer© software each registrant receives, you will gain an easy, reliable method to convert a borrower’s personal tax return (Form 1040) into a borrower’s cash flow statement.

In Part 2 of this two-part series, you will learn to cash flow Schedule D: Capital Gains and Losses; Schedule E, Page 1 (Rental and Royalty Income); Schedule E, Page 2 (Partnerships and S Corporations), and Schedule F (Farm Income). When you finish these sessions, you will be able do a little “magic” and convert taxable incomes into cash flows, which you can then plug into your credit scoring model, debt-to-income ratio, or disposable income calculation. (Note: This series is designed for consumer and commercial lenders. This method does not follow Fannie, Freddie, or QM rules used in mortgage lending.)