When a broker credits you back a portion of the credit after closing how is it best handled on one's taxes? It was not listed on the HUD statement. What I have read thus far suggests that it is not taxable income to buyer, rather just reduces the cost basis of home. Moreover, only the portion broker keeps is taxable but what is the best way for both broker and purchaser to show this on their taxes?
Broker Credit - Tax Treatment
- Thread starter Logik
- Start date
NEW -> Contingent Buyer Assistance Program
usctrojancpa
Well-known member
You are correct, the rebate is not taxable to the client and to the broker/agent. For the client it is a reduction of cost basis in the home (e.g. if the home cost is $800k and the rebate is $5k then the tax cost basis for the home to calculate the gain is $795k). If the client lives in the home for 2 out of the past 5 years in the home and keeps it as their primary residence then the client will have a $250k gain exemption if single ($500k gain exemption if married). The client should note the rebate on their HUD-1 so they adjust the total basis of their home when calculating the gain and nothing is reported on their tax returns. For the agent/broker, they will need to report the total gross commission in line 1 of Schedule C (amount before the rebate to ties to the 1099/s). Then the agent/broker should show the client rebates in line 2 of Schedule C (returns and allowances). I cut a check to my client where their name matches the name of the HUD-1 and I write in "commission rebate for 123 Main St" on the memo section of the check. Then I attached a copy of the cancelled check to the HUD-1 and file it away.Logik said:
usctrojancpa
Well-known member
The homebuyer should make a note of it on his HUD-1 and maybe make a copy of the check for their file. The home builder will 1099 the broker for the entire broker co-op commission and then the broker will 1099 the agent for the total commission sent to the agent.Logik said: