A capital gain or loss is generally a one-time transaction. Therefore, it should not usually be considered as either a gain or a loss in determining the income. However, if the borrower’s business has a constant turnover of assets that produces regular gains and losses, the capital gain or loss may be considered. (An example of this is the person who buys old houses, remodels them and sells them for profit.) If the borrower has operated in this manner over a period of time, the lender may develop an average of the past two years’ gains or losses for consideration in the income calculation. If this source represents a substantial portion of the borrower’s income, the underwriter should review tax returns for at least the last three years to get an accurate picture of the average earnings from this source. For example, an asset sold during the year might be an income- producing asset, which could result in a reduction in future income after the sale.
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