Ask The Experts: Question of the Week
Our loan scenario desk experts receive thousands of questions from our subscribers.
Our experts work in the field and have over 25 years of experience, which is why they are known for saving a lot of deals.
We hope you learn something new!
Fannie Mae & Freddie Mac – Handling a K-1 Section 179 Expense
Question:
If the K-1 shows a Section 179 Expense in box 11, does this need to be deducted from the Ordinary Income showing in line 1 of the K-1 when calculating self-employment income?
Answer:
No, Section 179 is not included in any way in the income calculations. The best suggestion I can make is to use the Self-employed income analysis forms from Fannie (Form 1084) or Freddie (Form 91) for self-employed income analysis. By following these forms, you will be following all of the available add-backs and line items they expect to be used on any self-employed business filing method.
More detail:
Section 179 Expense—This is a one-time write-off the first year something is placed into service versus depreciation over time, and lenders utilize the depreciation approach vs. the Section 179 approach based on agency guidelines.
Summary: Do Fannie Mae & Freddie Mac still allow Sec 179 Expense to be added back since it is effectively front-loaded depreciation? – No, this is not allowed.