Tax Dilemma: Mileage Deduction Impacting Our Mortgage Application Process

This is a common misunderstanding in the mortgage industry. As a mortgage underwriter, I can tell you that standard mileage deductions for self-employed borrowers are indeed handled differently than other business expenses in some situations. Some mortgage programs (particularly conventional loans) may allow for "adding back" certain business expenses to your income that are non-cash expenses - like depreciation or depletion. However, standard mileage deductions are in a gray area. Some lenders may consider a portion of the standard mileage rate as a non-cash expense (since it includes depreciation), but many don't. FHA and VA loans follow stricter guidelines and typically don't add back mileage deductions at all. Your original mortgage broker might have been working with a specific lender who handled this differently, or they may have been mistaken about their own company's policies.

I ran into this same issue last year! I was using https://taxr.ai to analyze my self-employment deductions and the difference they make to my bottom line. Their system actually highlighted how my mileage deduction was affecting my debt-to-income ratio for mortgage qualification. What I discovered is that while the standard mileage rate (65.5 cents per mile in 2023) covers both actual expenses AND depreciation, most mortgage underwriters don't separate these components. The tool helped me run different scenarios to see how much my qualifying income would change if I reduced or eliminated certain deductions. I ended up cutting back on claiming some business expenses for the year before my mortgage application, and it made a huge difference in what I could qualify for.

Just wanted to follow up - I actually tried taxr.ai after my skeptical comment, and it was actually really helpful. I uploaded my last two years of returns and it showed me exactly how much each deduction was affecting my "qualifying income" for mortgage purposes. The analysis showed that my $9,200 in mileage deductions was reducing my qualifying income by that full amount, but some other business expenses (like depreciation on equipment) might be treated differently by lenders. I was able to make some strategic decisions about which deductions to take this year since I'm planning to apply for a refinance later. Their explanation of how mortgage companies view different types of business expenses was way clearer than what my loan officer told me. Definitely worth checking out if you're self-employed and planning to apply for a mortgage.

Have you tried calling the IRS directly to get clarification on this? I know it sounds crazy but after weeks of trying to get through their regular line about a similar self-employment deduction issue, I used https://claimyr.com and actually got connected to an IRS agent in under 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with explained that while the IRS doesn't have specific rules about how mortgage companies treat deductions, they could at least clarify what portions of the standard mileage rate represent actual expenses versus depreciation (which might help with some lenders). They also sent me documentation I could provide to my lender. Turns out about 27 cents of the standard mileage rate is for depreciation, which some lenders will consider adding back. The IRS agent was super helpful in explaining this distinction.

I need to eat my words from my skeptical comment earlier. I tried the Claimyr service when I needed clarification on business mileage documentation requirements, and I was honestly shocked when I got a call back within 20 minutes saying my IRS agent was on the line. The agent confirmed that while they don't control how mortgage companies interpret tax returns, they could provide me with the official IRS breakdown of the standard mileage rate components. This turned out to be incredibly valuable because my lender WAS willing to add back the depreciation portion of my mileage deduction once I had official documentation showing how much of the rate was attributable to depreciation vs. actual expenses. Ended up qualifying for a significantly better loan than I initially thought possible. Sometimes being skeptical means you miss out on solutions that actually work!

There's another option nobody's mentioned yet - you could consider tracking actual expenses instead of taking the standard mileage deduction. If you track gas, maintenance, insurance, etc., those are all clearly "real expenses" that no mortgage underwriter would add back. The depreciation portion that happens when you take standard mileage is what sometimes can be added back by certain lenders. But if you track actual expenses and depreciate the vehicle separately, the depreciation portion becomes more visible and easier for underwriters to identify and potentially add back. It's more work to track everything, but might be worth it when applying for a mortgage.

Has anyone tried explaining to the mortgage company that you're intentionally taking fewer deductions in the current year to increase your qualifying income? I wonder if showing them draft tax returns without the mileage would help even before you file.

I'm dealing with a very similar situation right now as a freelance consultant. What I've learned from talking to multiple mortgage brokers is that there's a huge difference between loan programs and individual lender overlays when it comes to self-employment income calculations. The key thing that helped me was getting pre-qualified with 3-4 different lenders before making any tax decisions. Some credit unions and smaller regional banks have been more flexible about adding back depreciation components, while the big national lenders seem to have stricter automated underwriting systems. One broker told me that if I could document that a significant portion of my business vehicle use was for meeting clients (rather than just commuting), some lenders view that differently than general business travel. Apparently the nature of the self-employment matters - professional services that require client visits get treated differently than other types of businesses. My advice would be to shop around with mortgage brokers who specialize in self-employed borrowers BEFORE you file your 2024 taxes. That way you can make an informed decision about which deductions to take based on actual lender feedback rather than guessing.

This is such a frustrating situation that many self-employed people face! I went through something similar when I was trying to qualify for a mortgage as a freelance graphic designer. What I learned is that mortgage underwriters are incredibly inconsistent in how they handle self-employment deductions, and it often comes down to the specific lender's internal guidelines rather than any universal rule. One thing that worked for me was getting a letter from my CPA breaking down my business expenses into categories - actual cash expenses vs. non-cash expenses like depreciation. Even though the standard mileage deduction bundles everything together, having that breakdown helped one lender understand that a portion of my mileage deduction was essentially a "paper loss" rather than actual cash out of pocket. I'd also suggest looking into portfolio lenders or credit unions in your area. They often have more flexibility since they're not selling the loans to Fannie Mae or Freddie Mac, so they can use their own underwriting guidelines. The community bank where I eventually got my mortgage was much more willing to work with self-employed borrowers and actually did add back a portion of my vehicle depreciation. It's maddening that you have to choose between paying more taxes or qualifying for the home you want, but unfortunately that's the reality for many of us who are self-employed. Good luck with your decision!