Selling Guide

Published December 16, 2020

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What are the requirements to use capital gains income?

Capital Gains Income

Income received from capital gains is generally a one-time transaction; therefore, it should not be considered as part of the borrower’s stable monthly income. However, if the borrower needs to rely on income from capital gains to qualify, the income must be verified in accordance with the following requirements.

Verification of Capital Gains Income

  • Document a two-year history of capital gains income by obtaining copies of the borrower’s signed federal income tax returns for the most recent two years, including IRS Form 1040, Schedule D.
  • Develop an average income from the last two years (according to the Variable Income section of the Selling Guide, B3-3.1-01, General Income Information) and use the averaged amount as part of the borrower’s qualifying income as long as the borrower provides current evidence that he or she owns additional property or assets that can be sold if extra income is needed to make future mortgage loan payments.

Note: Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring.

Due to the nature of this income, current receipt of the income is not required to comply with the Allowable Age of Credit Documents policy. However, documentation of the asset ownership must be in compliance with the Allowable Age of Credit Documents policy. See B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns, for additional information.

For more information on capital gains income, refer to B3-3.1-09, Other Sources of Income and B3-3.3-04, Income or Loss Reported on IRS Form 1040, Schedule D.

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