1099-MISC on rebate??

irvinetabby

New member
I bought a new build and my realtor gave me back half of the commission. However, she asked for my SSN and later sent me a 1099-MISC for the entire rebate amount!

I assume this is now considered my "other income" and I have to pay taxes on this, making my real rebate lot smaller. I've never heard of this. Any input?

Thanks!
 
irvinetabby said:
I bought a new build and my realtor gave me back half of the commission. However, she asked for my SSN and later sent me a 1099-MISC for the entire rebate amount!

I assume this is now considered my "other income" and I have to pay taxes on this, making my real rebate lot smaller. I've never heard of this. Any input?

Thanks!

My input....don't give her your SSN.  It's not taxable income to you....you did nothing to constitute the definition of earned income.  Tell her to take the rebate that she gave you as a reduction of her total 1099 commissions (on Line 1) on Line 2 of her Schedule C. 
 
Darn it! I called her and she insisted she has to give customers the 1099, or else she would have to pay taxes on that amount.

Since I already gave her my SSN and the form was already mailed to me, I assume there is nothing I can do besides coughing up the money? :'(
 
Like USC said:http://www.nsbar.org/content/compensation-to-buyerseller

The IRS ruled that a payment or credit from the purchasers agent to the purchaser (i.e. a rebate) represents an adjustment to the purchase price of the home and generally is not includable in the purchasers gross income. The IRS also ruled that the agent did not have to issue a 1099 to the purchaser even if the rebate was more than $600.
 
Yeah I did some Googling and sent her bunch of links. She said she will contact her CPA (who's the one told her she needs to do that, and charges her $60 for each 1099 filed). But it's too late for them to withdraw the form, even if I manage to convince that stupid CPA.

I guess I'll just not file taxes on it, and if I get audited, I'll refer to that IRS letter.
 
Pipi said:

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."
 
irvinetabby said:
Yeah I did some Googling and sent her bunch of links. She said she will contact her CPA (who's the one told her she needs to do that, and charges her $60 for each 1099 filed). But it's too late for them to withdraw the form, even if I manage to convince that stupid CPA.

I guess I'll just not file taxes on it, and if I get audited, I'll refer to that IRS letter.

They should be able Amend the form to say $0. It can easily be done by the cpa who issued it on your agents behalf.
 
"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).

[/quote]

Sorry for my ignorance...what does reduction of property cost mean...just for tax/IRS purposes, right?
 
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.
 
irvineempathy said:
"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).

Sorry for my ignorance...what does reduction of property cost mean...just for tax/IRS purposes, right?
[/quote]

That means if you bought the home for a $1m and your closing costs were $10k and your rebate was $5k...your tax basis in the home is $1m + $10k - $5k = $1,005,000 (versus $1,010,000 without the rebate).  So if you sell the home for $1,100,000 in less than 2 years your taxable gain would be $1,100,000 - $1,005,000 = $95,000. 
 
Irvinemonk said:
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. 
 
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.
 

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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.
 
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. 
 
Borg5000 said:
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.
 
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