Author Topic: 1099-MISC on rebate??  (Read 10043 times)

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Offline USCTrojanCPA

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Re: 1099-MISC on rebate??
« Reply #15 on: April 17, 2017, 11:44:48 PM »
This brings up a interesting point. Is there a limit to the amount of rebate that the broker can offer the buyer?  Can they rebate say 90% to buyer? In which case the agent would only pay taxes on 10% and make a side deal with the buyer to get back some of that non taxed 90%... Of course the agent must be able to trust that the buyer will hold his end of the deal which is not going to be on paper.

There is no limit how much the agent can rebate a buyer, but the IRS may dig a little deeper if an agent rebates their clients 90-100% as it'll seem fishy.  The agent better get paid his share in cash and not deposit it in the bank to leave a trail. 
Martin Mania, CPA
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Offline irvinetabby

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Re: 1099-MISC on rebate??
« Reply #16 on: April 18, 2017, 01:26:57 AM »
I wasn't able to convince my realtor's CPA. See the messages the CPA sent her. Infuriating! The incompetent CPA is basically taking the easy way out by letting the buyers figure it out.

I like my realtor and I don't think she's out to get me. Unfortunately she trusts her CPA, and doesn't seem to like the idea when I suggested she get a second opinion in the future.

I have no other option but to file via mail, per the suggestion on Turbotax forum.
« Last Edit: April 18, 2017, 07:25:47 AM by irvinetabby »

Offline best_potsticker_in_town

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Re: 1099-MISC on rebate??
« Reply #17 on: April 18, 2017, 08:18:44 AM »
I really have no patience for these idiots. You should tell your agent that you'll never work with her again and won't give her referrals. See if she changes her tune.

Better yet, post the agent's name here so everyone can avoid. Post the CPA's name too. From that text exchange, it seems that the CPA is making a judgement based on escrow's actions, not a letter from the IRS. Escrow does whatever the buyer, seller, and agent agree to. The seller or the lender can decline to have the credit paid out at close for various reasons. I've had rebates paid out via escrow and also had it done after (bc Irvine Pacific doesn't allow) - it doesn't have anything to do with taxes. I don't want a CPA that makes anecdotal judgements rather than ones based off IRS rulings/code.

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Offline Borg5000

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Re: 1099-MISC on rebate??
« Reply #18 on: April 18, 2017, 09:55:23 AM »
This has been a huge discussion between me, my agent, and the CPA for a couple weeks when I closed on a new construction house.  I can only share my understanding but some folks here are CPAs so they can provide more accurate info.  There is a law called RESPA that makes any money given outside of escrow against the law as far as business expenses.  People can give money to each other all day as gifts but gifts are not an expense for the agent nor a cost basis change for the buyer.  Many agents dont seem to mind about breaking this RESPA law but I don't fault agents that do want to follow the law.  I believe it is a federal felony.  Again this is my laymen understanding. 

For OP, either you pay tax on that amount now or its a reduction on your cost basis and you pay tax on gains.  Benefit of tax on gains is that you have tax free gains if you live in it for 2 years or something like that. 

Offline WTTCHMN

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Re: 1099-MISC on rebate??
« Reply #19 on: April 18, 2017, 10:39:11 AM »
This has been a huge discussion between me, my agent, and the CPA for a couple weeks when I closed on a new construction house.  I can only share my understanding but some folks here are CPAs so they can provide more accurate info.  There is a law called RESPA that makes any money given outside of escrow against the law as far as business expenses.  People can give money to each other all day as gifts but gifts are not an expense for the agent nor a cost basis change for the buyer.  Many agents dont seem to mind about breaking this RESPA law but I don't fault agents that do want to follow the law.  I believe it is a federal felony.  Again this is my laymen understanding. 

For OP, either you pay tax on that amount now or its a reduction on your cost basis and you pay tax on gains.  Benefit of tax on gains is that you have tax free gains if you live in it for 2 years or something like that.

RESPA prevents kickbacks among lenders, real estate agents, title insurance companies, etc.

It doesn't apply to rebates back to the buyer.  Rebates aren't kickbacks.

Offline lnc

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Re: 1099-MISC on rebate??
« Reply #20 on: April 18, 2017, 11:15:39 AM »

Offline best_potsticker_in_town

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Re: 1099-MISC on rebate??
« Reply #21 on: April 18, 2017, 11:43:44 AM »
This has been a huge discussion between me, my agent, and the CPA for a couple weeks when I closed on a new construction house.  I can only share my understanding but some folks here are CPAs so they can provide more accurate info.  There is a law called RESPA that makes any money given outside of escrow against the law as far as business expenses.  People can give money to each other all day as gifts but gifts are not an expense for the agent nor a cost basis change for the buyer.  Many agents dont seem to mind about breaking this RESPA law but I don't fault agents that do want to follow the law.  I believe it is a federal felony.  Again this is my laymen understanding. 

For OP, either you pay tax on that amount now or its a reduction on your cost basis and you pay tax on gains.  Benefit of tax on gains is that you have tax free gains if you live in it for 2 years or something like that.

RESPA prevents kickbacks among lenders, real estate agents, title insurance companies, etc.

It doesn't apply to rebates back to the buyer.  Rebates aren't kickbacks.

This.

Once again, a case of professionals citing anecdotal evidence instead of IRS code or judgement precedent. Fake news.

Offline AW

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Re: 1099-MISC on rebate??
« Reply #22 on: April 18, 2017, 11:53:47 AM »
That's really unfortunate. 
Looks like you joined TI before buying your place, if you went with TI agents, would've given more than what you got and without the 1099 issue.

Offline test

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Re: 1099-MISC on rebate??
« Reply #23 on: April 21, 2017, 04:52:39 PM »
This has been a huge discussion between me, my agent, and the CPA for a couple weeks when I closed on a new construction house.  I can only share my understanding but some folks here are CPAs so they can provide more accurate info.  There is a law called RESPA that makes any money given outside of escrow against the law as far as business expenses.  People can give money to each other all day as gifts but gifts are not an expense for the agent nor a cost basis change for the buyer.  Many agents dont seem to mind about breaking this RESPA law but I don't fault agents that do want to follow the law.  I believe it is a federal felony.  Again this is my laymen understanding. 

For OP, either you pay tax on that amount now or its a reduction on your cost basis and you pay tax on gains.  Benefit of tax on gains is that you have tax free gains if you live in it for 2 years or something like that.

RESPA prevents kickbacks among lenders, real estate agents, title insurance companies, etc.

It doesn't apply to rebates back to the buyer.  Rebates aren't kickbacks.

It still needs to go through escrow

According to HUD, yes, real estate agents may rebate a portion of the agent's commission to the borrower in a real estate transaction. The rebate must be listed as a credit on page 1 of the HUD-1 in Lines 204-209 and the name of the party giving the credit must be identified.

https://www.justice.gov/atr/competition-real-estate-questions-and-answers

« Last Edit: April 18, 2019, 10:12:27 AM by test »

Offline Soylent Green Is People

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Re: 1099-MISC on rebate??
« Reply #24 on: April 21, 2017, 05:23:21 PM »
There's always going to OCAR and asking for a hearing. If the Agent did not disclose to you that a 1099 would be generated prior to sending you the rebate, perhaps getting some input by the general realtor population - better yet, her broker of record - might change her tune quickly.  At least float that idea past her so you can give her enough time to make things right. I'd start with -

"so, your broker and I were chatting about this issue today and..."

or

"You know, I've asked the folks down at the Laguna Hills OCAR office about what's standard practice, and they seem interested in this question. When are you available to go down to discuss this with them?...."

My .02c

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Re: 1099-MISC on rebate??
« Reply #25 on: December 18, 2018, 08:28:16 AM »
Spam

Offline sonarvord

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Re: 1099-MISC on rebate??
« Reply #26 on: April 05, 2019, 11:39:25 AM »
https://ttlc.intuit.com/questions/2910212-as-a-real-estate-agent-i-rebated-part-of-my-commission-to-the-buyer-after-the-close-of-escrow-by-writing-him-a-check-am-i-required-to-issue-a-1099-form-to-the-buyer

Yup....been saying the same thing for years and years but what do I know, I'm just a CPA.  haha   Btw, as some of you have already seen that not all CPAs are created equally...some are lazy and lack the most basic research skills (heck even google skills) which is SAD!

"The IRS has issued a private letter ruling that refunds of commissions by a real estate broker are not taxable income.  In the ruling that discuss that no Form 1099 needs to be issued by the broker, and the buyer would treat the refund as a reduction in the cost of the property.  See PLR 157111-06 (http://www.irs.gov/pub/irs-wd/0721013.pdf).

If your realtor has given you a Form 1099-MISC for any rebate they did so in error.  If they won’t issue a corrected form you would need to:

·         Prepare a return not including the amount on the Form 1099-MISC.

·         Attach a statement indicating why it is not reported (perhaps quoting PLR 1571111-06), and

·         File on paper.

Unfortunately, adding any statement to a tax return negates the ability to e-file."

Have you ever helped a client with this situation that was the Buyer Agent for the purchase of his/her own personal residence.  If the commission rebate is handled completely in escrow and equals the Buyer Agent entire commission, then seems to me that the Buyer's Broker should not issue a 1099 to the Agent.  Any thoughts on this?  Thank you!

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Offline USCTrojanCPA

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Re: 1099-MISC on rebate??
« Reply #27 on: April 05, 2019, 05:41:41 PM »
https://ttlc.intuit.com/questions/2910212-as-a-real-estate-agent-i-rebated-part-of-my-commission-to-the-buyer-after-the-close-of-escrow-by-writing-him-a-check-am-i-required-to-issue-a-1099-form-to-the-buyer

Yup....been saying the same thing for years and years but what do I know, I'm just a CPA.  haha   Btw, as some of you have already seen that not all CPAs are created equally...some are lazy and lack the most basic research skills (heck even google skills) which is SAD!

"The IRS has issued a private letter ruling that refunds of commissions by a real estate broker are not taxable income.  In the ruling that discuss that no Form 1099 needs to be issued by the broker, and the buyer would treat the refund as a reduction in the cost of the property.  See PLR 157111-06 (http://www.irs.gov/pub/irs-wd/0721013.pdf).

If your realtor has given you a Form 1099-MISC for any rebate they did so in error.  If they won’t issue a corrected form you would need to:

·         Prepare a return not including the amount on the Form 1099-MISC.

·         Attach a statement indicating why it is not reported (perhaps quoting PLR 1571111-06), and

·         File on paper.

Unfortunately, adding any statement to a tax return negates the ability to e-file."

Have you ever helped a client with this situation that was the Buyer Agent for the purchase of his/her own personal residence.  If the commission rebate is handled completely in escrow and equals the Buyer Agent entire commission, then seems to me that the Buyer's Broker should not issue a 1099 to the Agent.  Any thoughts on this?  Thank you!

That is correct, if the Buyer Agent contributes all of their commission into escrow on behalf of the buyer than escrow will not remit any funds to the broker and the broker won't issue an amount in the 1099 for that transaction.  I've never contributed all of my commission towards closing costs of the buyer, even when I was my own buyer/buyer's agent.  If you are financing a property, the lender will limit ALL credits to the buyer (from the seller, listing agent, and/or buyer's agent) no greater than actual closing costs.  Anything any credits above actual closing costs are considered to be equity by the lender and don't allow that.  If the property is purchased for all cash, then there's no limitation on the credits the buyer received from the seller, listing agent, and/or buyer's agent.  Hope that helps. 
Martin Mania, CPA
AgencyOne
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CA CPA License # 107675
mmania001@yahoo.com
714-747-3884 cell

Often imitated....Never duplicated!

 

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