Self-Employed Income Formula Explained
The math behind the Self-Employed Income Calculator: the equation, the variables, and the assumptions it makes.
By Onias Derilus, Mortgage Capital · NMLS# 1859012 · Last Updated: June 2026
It estimates the qualifying income a lender will use from your tax returns by averaging net business income and adding back non-cash deductions like depreciation.
The Formula
Qualifying income = (avg net income + add-backs) × ownership / 12
Lenders start from the net income on your business tax returns, then add back paper deductions like depreciation that reduce taxable income without reducing cash. This raises the income they can use to qualify you.
Most lenders average two years of returns and look for stable or rising income. A sharp decline year over year can cause them to use the lower figure, so trends matter as much as the average.
Turn Your Self-Employed Income Estimate Into a Real Pre-Approval
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