How can we help? Call us at 360-455-1569 or email Info@LindaKeithCPA.com.
default-logo

What can I include in cashflow from Schedule B: Interest and Dividends?

Great question, since Schedule B is a mixed bag. As always, check your own guidelines. Here is my short list:

Add

  • Interest from banks, credit unions and S&Ls
    • When interest rates come back out of the basement, and if this is significant in amount, consider if the borrower still owns the underlying assets
  • Interest and Principal from a Note or Contract Receivable
    • See “Interest from an individual or company” in the ‘do not add’ list below for explanation

  • Dividends
    • If significant, consider if the borrower still owns the subject stock. If not, but has been replaced by other stock that will provide dividends, I’d still add it

Do not add

  • Interest from a Schedule K-1
    • This is pass-through from an 1120S or a 1065
    • If the borrower is a low % owner, you need the K-1 to see what they actually received in distributions
    • If the borrower is a high % owner, you need the 1120S or the 1065 to see what the company can afford to pay the owner
  • Interest from an individual or a company
    • This is the result of a note or contract receivable
    • The full amount received is the interest PLUS the principal
    • In order to count this, you would need a copy of the contract or note to determine how much longer it is continuing
    • If continuing long enough and you need the income to qualify, give the borrower credit for the entire amount received, not just the interest income
  • Nominee Interest
    • This is interest for which this borrower received a 1099 but it really belongs to someone else
    • Example: You are on your Mother’s bank account for her convenience and they listed you first
    • You will notice this because there will be a subtraction in the listed interest sources that says something like “Less Nominee Interest”
    • Match it up with the same amount listed from a bank or credit union up above and be sure to exclude that interest income
      • If using AGI method, no need. The Nominee subtraction will back it out.
      • If using the Schedule Analysis Method, just be sure you did not include the subject interest income in the figure you are adding for interest

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.