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 If not, but has been replaced by other stock that will provide dividends, I'd still add it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