1099-MISC on rebate??

[lnc]

These agents need to hire a better CPA.
http://www.talkirvine.com/index.php/topic,13872.msg278635.html#msg278635

 

[potsticker]

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.

 

[AW]

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.

 

[test]

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

 

[sgip]

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

 

[eyephone]

Spam

 

[sonarvord]

https://ttlc.intuit.com/questions/2...-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!

 

[usctrojancpa]

https://ttlc.intuit.com/questions/2...-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.