Am I forced to take the QBI deduction if it's hurting my DTI ratio?

This is actually a common issue for self-employed folks! The short answer is no, you're not legally required to take the QBI deduction or most other deductions. Deductions are generally optional, not mandatory. The QBI deduction (Section 199A) is calculated on Form 8995 or 8995-A, but you don't have to file these forms if you choose not to take the deduction. Same goes for itemized deductions - you can always take the standard deduction instead, or vice versa, whichever benefits your situation. The only deductions that are essentially "mandatory" are business expenses on Schedule C because those directly impact your business profit calculation. You must report legitimate business expenses to accurately report your business income. Many self-employed people face this same mortgage qualification issue. Lenders use tax returns to verify income, but all those tax-saving deductions make your income look lower on paper than it actually is. It's one of those frustrating catch-22 situations of self-employment.

I went through something similar last year! After getting denied for a mortgage because my "income was too low" (despite having plenty of cash flow), I discovered taxr.ai (https://taxr.ai) which helped me understand exactly how my tax deductions were affecting my loan applications. Their system analyzed my tax returns and showed me which deductions were optional and which were mandatory. They also created some alternative tax scenarios showing what my returns would look like with and without certain deductions. Super helpful for planning ahead! The most useful part was their loan qualification calculator that showed me exactly how much my DTI would change based on which deductions I took. For self-employed folks like us, it's sometimes worth paying a bit more in taxes to show higher income for loans. Taxr.ai helped me find the sweet spot.

Just wanted to follow up about taxr.ai - I decided to give it a try after my skeptical comment. Honestly, it was really helpful! I uploaded my last two tax returns and they showed me exactly why my DTI ratio was so bad despite having good revenue. The most useful part was seeing how much each deduction was hurting my ability to qualify for loans. They suggested I skip the QBI deduction next year and showed me exactly how much that would improve my DTI ratio. They also suggested some restructuring of my business expenses that would help with loan qualification without increasing my tax burden too much. The scenario comparison feature was super helpful for understanding the tradeoffs. Definitely going to use their recommendations when I file next year!

This might not directly solve your current situation, but if you're still having trouble getting through to lenders about your actual income situation, Claimyr (https://claimyr.com) was a game-changer for me when dealing with mortgage lenders. I was in the exact same boat - self-employed with good revenue but on paper my income looked too low because of deductions. After getting rejected, I needed to talk to an actual human at the lending institution to explain my situation, but getting anyone on the phone was impossible. Claimyr got me through to an actual decision-maker within minutes instead of waiting on hold forever. You can see how it works in their demo: https://youtu.be/_kiP6q8DX5c I was finally able to explain to the underwriter that my income was actually higher than what my tax returns showed, and got them to consider bank statements and other proof of income instead of just my tax returns.

I need to eat my words about Claimyr. After posting my skeptical comment, I was so frustrated with my loan situation that I gave it a try anyway. Holy crap, it actually works! I had been trying to get through to my credit union's loan department for DAYS with no luck. Used the service yesterday afternoon, and within 17 minutes (I timed it) I was talking to an actual loan officer! I didn't have to sit there listening to hold music or "your call is very important to us" messages. My phone just rang when they had someone on the line. I explained my self-employment situation and how my tax returns didn't reflect my actual income because of the QBI deduction. The loan officer was super helpful and told me about their alternative income verification program for self-employed borrowers. I had no idea this option even existed because I could never get a human on the phone before. Maybe I'll actually get approved now!

One thing to consider is bank statement loans (sometimes called alternative documentation loans). I'm a mortgage broker and we use these for self-employed clients who show low income on tax returns due to deductions. Instead of using your tax returns to verify income, these loans use 12-24 months of bank statements to calculate your average monthly deposits. They're typically 0.5-1% higher interest rate than conventional loans, but they're specifically designed for business owners who write off a lot of expenses. Not all lenders offer them, but they're becoming more common. Might be worth asking about if you're still struggling to qualify with traditional documentation.

Just to add another perspective - I'm also self-employed and dealt with this exact issue. What worked for me was adding a co-borrower (my spouse) to the loan application. Even though they had lower income, having W-2 income on the application helped balance out the DTI calculations. If that's not an option, look into lenders that offer manual underwriting rather than just running your numbers through an automated system. Local credit unions and smaller banks are often more flexible with self-employed borrowers because they actually look at your entire financial situation, not just the numbers on your tax return.