How to Calculate Automobile Allowance

How to Calculate Automobile Allowance

Auto allowance can be considered stable income if the borrower has received payment for at least two years.
  1. Any business expenditures must be considered in the calculation of the DTI
  2. There are two methods of calculating auto allowance income:
    1. Actual cash flow approach, and
    2. Income and debt approach.
  3. Actual cash flow: used if the borrower reports auto allowances on 1040 tax returns, schedule “C” or form 2106 (see example on page 68)
    1. funds in excess of the borrower’s monthly expenditures are added to the borrower’s monthly income, or
    2. expenses in excess of the monthly allowance are included in the borrower’s total monthly obligations.
  4. If the borrower used IRS Form 2106 “ actual expenses” instead of the “standard mileage rate,” look at the “actual expenses” section of the form to identify the borrower’s actual lease payments and make appropriate adjustments

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