Realtor rebate for new house

[Dr. CA Real Estate]

As far as the IRS is concerned, a commission rebate paid to you is income you received.  Even if you are able to net the rebate against your closing costs the amount of your rebate is still taxable income.  The agent giving you a 1099 for the rebate amount is handling the rebate correctly as far as tax reporting goes.

Wrong. Read thread and the citations. Easy to independently verify as well.

 

[usctrojancpa]

As far as the IRS is concerned, a commission rebate paid to you is income you received.  Even if you are able to net the rebate against your closing costs the amount of your rebate is still taxable income.  The agent giving you a 1099 for the rebate amount is handling the rebate correctly as far as tax reporting goes.

So how should commission rebates from agents made to the buyer's escrow be handled, also as income?  The definition of earned is that a service or product is provided in exchange for consideration.  What kind of service did the buyer perform for the agent?  The answer is none, the agent did service for the buyer.  ALL REBATES, whether they are done in or outside of escrow, are NOT TAXABLE...they are a reduction of the cost basis in the home.  I've been audited by the IRS for 3 straight years related to my commission rebates and what I just mentioned was the final conclusion after I provided them a copy of the canceled checks with the closing statements.

 

[AW]

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k. 

 

[usctrojancpa]

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k. 

Nothing worse than dumb, greedy realtors.

 

[sleepy5136]

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k.

I take that money I left on the table a lesson learned as a first time home buyer. can't do anything to reverse things so I am going to take it as a learning point instead of fretting about it.

 

[irvine buyer]

As far as the IRS is concerned, a commission rebate paid to you is income you received.  Even if you are able to net the rebate against your closing costs the amount of your rebate is still taxable income.  The agent giving you a 1099 for the rebate amount is handling the rebate correctly as far as tax reporting goes.

No, this is incorrect. Home purchase rebate to the principal is NOT taxable and should not be issued a 1099. Previous cases argued to the IRS states this.

Years ago when I was an apartment agent I would offer commission rebates to clients similar to what the single family agents offer.  Since commission amounts in multifamily can be high due to the higher sales prices, there were years when I paid out over $100k in rebates.  The brokerage where I hung my license not only had to approve the rebates but ran the tax treatment by their tax accountants.  I also ran the tax treatment by my accountant and both concurred that rebates are taxable income to the person receiving the money.  Income can be earned and unearned.

I'm not trying to start an argument here but rather would advise sleepy to check with his/her own accountant.  Perhaps something has changed as to the tax treatment. Perhaps the two CPA's mentioned above were wrong (one is a regional accounting firm).  Who knows.  If you have specific tax law cases to back up your position then by all means go with that position.  We issued 1099's to all recipients as that was the tax advice given and we never had anyone complain.  Then again the rebates were all five figures and the recipients were happy to get the money.

Edit:  I stand corrected.  Found IRS private letter ruling 157111-06 dated May 2007 clarifying that commission rebates are not taxable income.  In defense of the accountants referenced, the advice was given in the late 1990's.  Thanks to those who pointed this error out.

 

[Bullsback]

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k. 

Nothing worse than dumb, greedy realtors.

I don't know all the facts - but can we really call her greedy if there was no arrangement made prior to this transaction. Seems to me that the buyer learned a valuable lesson that you need to be specific around an arrangement before you jump to this path (and I presume the realtor should have also been clear on her intent as well).

But for all I know - someone stumbled on this site after the fact and decided to ask for a rebate - quite frankly - if that were the case - the realtor didn't really have to do anything and maybe to them they think giving 10% is a solid concession given they had never even agreed to this in the first place.

That said - I can't really just call the realtor greedy (unless I misread that the realtor is "flip flopping" from what they said. 

I also don't get the poster saying $2K 1099 is a hassle.  Worse case you improperly pay taxes because of your 1099 - but you are still getting money you wouldn't get otherwise (there is no extra work on your taxes for a 1099). Or just explain it to your tax person and have them adjust your tax forms so you don't pay taxes on the $2k.  Neither should be hard to do.  Annoying - maybe - but like a 5 minute annoyance in grand scheme of things. 

 

[Nguyen80]

He?s being being overly harsh to make himself look better. Common strategy.
Objectively there was no prior agreement for sharing more and the agent probably is at a point in their career where they have not earned a high split from their brokerage or have the business pipeline to afford giving away more. Maybe they have a sick relative. None of us can know. Only important thing is as OP mentioned is they learned going forward.

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k. 

Nothing worse than dumb, greedy realtors.

I don't know all the facts - but can we really call her greedy if there was no arrangement made prior to this transaction. Seems to me that the buyer learned a valuable lesson that you need to be specific around an arrangement before you jump to this path (and I presume the realtor should have also been clear on her intent as well).

But for all I know - someone stumbled on this site after the fact and decided to ask for a rebate - quite frankly - if that were the case - the realtor didn't really have to do anything and maybe to them they think giving 10% is a solid concession given they had never even agreed to this in the first place.

That said - I can't really just call the realtor greedy (unless I misread that the realtor is "flip flopping" from what they said. 

I also don't get the poster saying $2K 1099 is a hassle.  Worse case you improperly pay taxes because of your 1099 - but you are still getting money you wouldn't get otherwise (there is no extra work on your taxes for a 1099). Or just explain it to your tax person and have them adjust your tax forms so you don't pay taxes on the $2k.  Neither should be hard to do.  Annoying - maybe - but like a 5 minute annoyance in grand scheme of things. 

 

[usctrojancpa]

He?s being being overly harsh to make himself look better. Common strategy.
Objectively there was no prior agreement for sharing more and the agent probably is at a point in their career where they have not earned a high split from their brokerage or have the business pipeline to afford giving away more. Maybe they have a sick relative. None of us can know. Only important thing is as OP mentioned is they learned going forward.

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k. 

Nothing worse than dumb, greedy realtors.

I don't know all the facts - but can we really call her greedy if there was no arrangement made prior to this transaction. Seems to me that the buyer learned a valuable lesson that you need to be specific around an arrangement before you jump to this path (and I presume the realtor should have also been clear on her intent as well).

But for all I know - someone stumbled on this site after the fact and decided to ask for a rebate - quite frankly - if that were the case - the realtor didn't really have to do anything and maybe to them they think giving 10% is a solid concession given they had never even agreed to this in the first place.

That said - I can't really just call the realtor greedy (unless I misread that the realtor is "flip flopping" from what they said. 

I also don't get the poster saying $2K 1099 is a hassle.  Worse case you improperly pay taxes because of your 1099 - but you are still getting money you wouldn't get otherwise (there is no extra work on your taxes for a 1099). Or just explain it to your tax person and have them adjust your tax forms so you don't pay taxes on the $2k.  Neither should be hard to do.  Annoying - maybe - but like a 5 minute annoyance in grand scheme of things. 

For the level of work provided by the realtor given to the buyer from what we were lead to believe, the agent does sound a bit greedy.  Also, it's not hard to find out whether commission rebates are taxable or not taxable...just a simple google search like where I found the IRS letter ruling PDF in a few minutes.  I don't have to try to make myself look better, I have always given rebates to my clients even many times without them asking me for one.  Why?  Because it's the right thing to do and a way to thank them for the business as I focus on the relationship which is worth a lot more than any single transaction.

 

[bones]

This happened to me. No pre-negotiated rebate prior to buying a new home. I asked my realtor about it after. They said no. I dropped it. I don't think they were greedy but definitely short-sighted. I never used them again even though I was a repeat client during this process.

 

[usctrojancpa]

This happened to me. No pre-negotiated rebate prior to buying a new home. I asked my realtor about it after. They said no. I dropped it. I don't think they were greedy but definitely short-sighted. I never used them again even though I was a repeat client during this process.

Yup, hence why I say....establishing client relationship > providing commission rebates

 

[usctrojancpa]

As far as the IRS is concerned, a commission rebate paid to you is income you received.  Even if you are able to net the rebate against your closing costs the amount of your rebate is still taxable income.  The agent giving you a 1099 for the rebate amount is handling the rebate correctly as far as tax reporting goes.

No, this is incorrect. Home purchase rebate to the principal is NOT taxable and should not be issued a 1099. Previous cases argued to the IRS states this.

Years ago when I was an apartment agent I would offer commission rebates to clients similar to what the single family agents offer.  Since commission amounts in multifamily can be high due to the higher sales prices, there were years when I paid out over $100k in rebates.  The brokerage where I hung my license not only had to approve the rebates but ran the tax treatment by their tax accountants.  I also ran the tax treatment by my accountant and both concurred that rebates are taxable income to the person receiving the money.  Income can be earned and unearned.

I'm not trying to start an argument here but rather would advise sleepy to check with his/her own accountant.  Perhaps something has changed as to the tax treatment. Perhaps the two CPA's mentioned above were wrong (one is a regional accounting firm).  Who knows.  If you have specific tax law cases to back up your position then by all means go with that position.  We issued 1099's to all recipients as that was the tax advice given and we never had anyone complain.  Then again the rebates were all five figures and the recipients were happy to get the money.

Edit:  I stand corrected.  Found IRS private letter ruling 157111-06 dated May 2007 clarifying that commission rebates are not taxable income.  In defense of the accountants referenced, the advice was given in the late 1990's.  Thanks to those who pointed this error out.

It could very well have been that rebates were taxable before the IRS letter ruling (due to Redfin going to tax court to fight the IRS over their rebates to buyers).  I also look at it this way too....if a commission rebate via a credit towards the buyer's closing costs through escrow is not taxable then why should a rebate made outside of escrow be taxable when it's the same thing. 

 

[sleepy5136]

The agent told me she will give me a credit despite not mentioning it earlier. I am grateful that she is doing this, but where it got messy was when she was trying to put her personal tax interests over her clients. This is a conflict of interest. If she told me there will be no rebate, then it is what it is. There would be nothing really to say. But since she has agreed to give a rebate, one can't put their personal interests over their clients and expect to have a business in the future.

He?s being being overly harsh to make himself look better. Common strategy.
Objectively there was no prior agreement for sharing more and the agent probably is at a point in their career where they have not earned a high split from their brokerage or have the business pipeline to afford giving away more. Maybe they have a sick relative. None of us can know. Only important thing is as OP mentioned is they learned going forward.

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k. 

Nothing worse than dumb, greedy realtors.

I don't know all the facts - but can we really call her greedy if there was no arrangement made prior to this transaction. Seems to me that the buyer learned a valuable lesson that you need to be specific around an arrangement before you jump to this path (and I presume the realtor should have also been clear on her intent as well).

But for all I know - someone stumbled on this site after the fact and decided to ask for a rebate - quite frankly - if that were the case - the realtor didn't really have to do anything and maybe to them they think giving 10% is a solid concession given they had never even agreed to this in the first place.

That said - I can't really just call the realtor greedy (unless I misread that the realtor is "flip flopping" from what they said. 

I also don't get the poster saying $2K 1099 is a hassle.  Worse case you improperly pay taxes because of your 1099 - but you are still getting money you wouldn't get otherwise (there is no extra work on your taxes for a 1099). Or just explain it to your tax person and have them adjust your tax forms so you don't pay taxes on the $2k.  Neither should be hard to do.  Annoying - maybe - but like a 5 minute annoyance in grand scheme of things. 

 

[usctrojancpa]

The agent told me she will give me a credit despite not mentioning it earlier. I am grateful that she is doing this, but where it got messy was when she was trying to put her personal tax interests over her clients. This is a conflict of interest. If she told me there will be no rebate, then it is what it is. There would be nothing really to say. But since she has agreed to give a rebate, one can't put their personal interests over their clients and expect to have a business in the future.

He?s being being overly harsh to make himself look better. Common strategy.
Objectively there was no prior agreement for sharing more and the agent probably is at a point in their career where they have not earned a high split from their brokerage or have the business pipeline to afford giving away more. Maybe they have a sick relative. None of us can know. Only important thing is as OP mentioned is they learned going forward.

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k. 

Nothing worse than dumb, greedy realtors.

I don't know all the facts - but can we really call her greedy if there was no arrangement made prior to this transaction. Seems to me that the buyer learned a valuable lesson that you need to be specific around an arrangement before you jump to this path (and I presume the realtor should have also been clear on her intent as well).

But for all I know - someone stumbled on this site after the fact and decided to ask for a rebate - quite frankly - if that were the case - the realtor didn't really have to do anything and maybe to them they think giving 10% is a solid concession given they had never even agreed to this in the first place.

That said - I can't really just call the realtor greedy (unless I misread that the realtor is "flip flopping" from what they said. 

I also don't get the poster saying $2K 1099 is a hassle.  Worse case you improperly pay taxes because of your 1099 - but you are still getting money you wouldn't get otherwise (there is no extra work on your taxes for a 1099). Or just explain it to your tax person and have them adjust your tax forms so you don't pay taxes on the $2k.  Neither should be hard to do.  Annoying - maybe - but like a 5 minute annoyance in grand scheme of things. 

It's fairly clear from your posts that she has lost all of your future business, it's a shame that so many agents are so short-sighted but not surprising as most agents can not see beyond the here and now.  Oh well, their loss is the gain for good agents that take care of their clients.

 

[sleepy5136]

The agent told me she will give me a credit despite not mentioning it earlier. I am grateful that she is doing this, but where it got messy was when she was trying to put her personal tax interests over her clients. This is a conflict of interest. If she told me there will be no rebate, then it is what it is. There would be nothing really to say. But since she has agreed to give a rebate, one can't put their personal interests over their clients and expect to have a business in the future.

He?s being being overly harsh to make himself look better. Common strategy.
Objectively there was no prior agreement for sharing more and the agent probably is at a point in their career where they have not earned a high split from their brokerage or have the business pipeline to afford giving away more. Maybe they have a sick relative. None of us can know. Only important thing is as OP mentioned is they learned going forward.

yeah, this sucks that you got a bummer agent that won't rebate back.  It's tough when this wasn't discussed prior and you found TI too late, sounds like the agent have a difficult time letting go of $2k, imagine the shock if the amount is more like $50k. 

Nothing worse than dumb, greedy realtors.

I don't know all the facts - but can we really call her greedy if there was no arrangement made prior to this transaction. Seems to me that the buyer learned a valuable lesson that you need to be specific around an arrangement before you jump to this path (and I presume the realtor should have also been clear on her intent as well).

But for all I know - someone stumbled on this site after the fact and decided to ask for a rebate - quite frankly - if that were the case - the realtor didn't really have to do anything and maybe to them they think giving 10% is a solid concession given they had never even agreed to this in the first place.

That said - I can't really just call the realtor greedy (unless I misread that the realtor is "flip flopping" from what they said. 

I also don't get the poster saying $2K 1099 is a hassle.  Worse case you improperly pay taxes because of your 1099 - but you are still getting money you wouldn't get otherwise (there is no extra work on your taxes for a 1099). Or just explain it to your tax person and have them adjust your tax forms so you don't pay taxes on the $2k.  Neither should be hard to do.  Annoying - maybe - but like a 5 minute annoyance in grand scheme of things. 

It's fairly clear from your posts that she has lost all of your future business, it's a shame that so many agents are so short-sighted but not surprising as most agents can not see beyond the here and now.  Oh well, their loss is the gain for good agents that take care of their clients.

Yup. And now that I think about it, she wasn't that helpful in terms of understanding how new construction works. For example, assisting with the contract reading and guiding us on things to look out for before signing the contract. I literally asked if she can help us look into it and she told me she isn't familiar with it and that its more builder specific. I was pretty pissed at that time and I should have used that as an indicator to drop her. But I'm not sure if I could since I signed her in when doing the home tours. I didn't mind looking into it myself but as a FTHB, there are going to be things you miss and guidance would have been helpful.

Some of the things I saw in the contract were hilarious and outright ridiculous. For example, builders can delay the project for up to 2 years.

 

[Dr. CA Real Estate]

At this point in the contract main thing you need to do is get home inspector when you do your walk through.

 

[Cares]

I also recommend to pay for an inspector just prior to your 1 year anniversary when your warranty with the builder ends. Then file all your claims.

 

[sleepy5136]

Oh yes, I definitely plan to use an inspector. Thank you all for helping me out. Really glad I found this forum and very appreciative for the support here.

 

[JadedOne]

I also recommend to pay for an inspector just prior to your 1 year anniversary when your warranty with the builder ends. Then file all your claims.

Great tip - never thought of this.

 

[sleepy5136]

I also recommend to pay for an inspector just prior to your 1 year anniversary when your warranty with the builder ends. Then file all your claims.

surprisingly my builder agent told me this too. but thanks for mentioning it as well!