I'm trying to understand net income from self-employment, when qualifying for an affordable housing program.
I had always thought that net income was the cash (checks, wires, etc) coming in. However, it seems that for self-employment, it's profit-loss, to quote:
Income from a Sole Proprietorship (for Self-employed) MOHCD will use a P&L statement for a self-employed applicant to determine an applicant’s business income for the current year.
MOHCD will use the following steps to calculate an applicant’s Income from a P&L statement:
Step 1: Use the YTD net profit shown on the P&L statement, adding back any of the allowable adjustments used in analyzing the tax returns for the business, such as non-recurring loss and expenses, depreciation, depletion, and amortization and casualty loss (the result of step 1 is the YTD adjusted Gross Income).
Step 2: Divide the adjusted Income by the number of months on the P&L statement to get the average monthly income. Multiply this number by 12 to annualize.Example: Calculating Income with P&L Statement: YTD net profit as stated on P&L statement = $20,000 Allowable adjustments = $10,000 YTD adjusted Gross Income = $30,000 ($20,000 + $10,000) Number of months = 10 Average monthly income = $3,000 ($30,000 divided by 10) Annualized income = $36,000 ($3,000 x 12)
To qualify for affordable housing, one must have an income of at least $31,500 but less than $42,000.
Does this mean that if someone makes $1M per year on self employment but has expenses of $965,000 or so that their net income is only $35,000... then even a self-employed millionaire would qualify for affordable housing programs (Below Median Rent)?