Mortgage brokers owe B&O tax on their taxable income. Payments made by the brokerage house to independent contractors cannot be deducted.
Fees for specific services directly provided by the mortgage broker, such as document preparation and set up fees, are part of the mortgage broker’s gross income. Examples of activities which generate taxable income include:
- Fees from closed loans (loan origination fees)
- Amounts billed to independent contractors for B&O tax
- Amounts received for desk or office rental, office services, etc.
- Correspondent fees
- Accrued interest
- Gain on the sale of loans (applies to lending brokers)
Non-taxable income – Third party costs
The mortgage broker collects amounts from the borrower to cover third party costs for appraisals, title reports, credit reports, etc. that are placed in a trust account.
Mortgage brokers (regardless of type) may charge the borrower various fees for:
- document preparation
- title insurance
- credit report
The above third party costs are not subject to the B&O tax and should not be included in the gross income of the mortgage broker.