topic If a real estate agent is representing themselves as Buyer's Agent in the purchase of a property and credits/rebates their commission to themselves in Get your taxes done using TurboTax

If a real estate agent is representing themselves as Buyer's Agent in the purchase of a property and credits/rebates their commission to themselves

californiastanda — Tue, 04 Jun 2019 19:57:27 GMT

If a real estate agent is purchasing a property, represents themselves as Buyer’s Agent, and credits/rebates their commission to themselves: would this commission rebate be considered a non-taxable event (reduction in cost basis of property) just as if they had given said commission rebate to a client that was not themselves? In other words, does the fact that the Buyer happens to also be the Buyer’s Agent make this otherwise non-taxable commission rebate taxable?

Within the context of the above, the primary question is the following: should an employing broker issue a 1099-MISC to one of their agents who represented themselves as Buyer's Agent, and credited their entire commission as Buyer's Agent to themselves as Buyer?

Assuming the realtor operates as an independent contracto...

TomD8 — Tue, 04 Jun 2019 19:57:29 GMT

Assuming the realtor operates as an independent contractor:

If the realtor/agent reports their full commission as income on line 1 of his or her Schedule C, the realtor/agent may then deduct the rebated amount on that Schedule C.

The realtor/buyer must then reduce their cost basis in the home by the amount of the rebate.

Thank you very much for your reply. Within the context of...

californiastanda — Tue, 04 Jun 2019 19:57:30 GMT

Thank you very much for your reply. Within the context of the original question, the primary purpose of our question is to determine the following: should an employing broker issue a 1099-MISC to one of their agents who represented themselves as Buyer's Agent on a purchase, and credited their entire commission as Buyer's Agent to themselves as the Buyer?

Yes. The employing broker should include the agent's ful...

TomD8 — Tue, 04 Jun 2019 19:57:31 GMT

Yes. The employing broker should include the agent's full commission in the agent's year-end 1099-MISC.

Very fortunate to find this Question/Answer since I have...

wbindeman — Tue, 04 Jun 2019 19:57:36 GMT

Very fortunate to find this Question/Answer since I have a similar situation that I'm hoping to get clarification on!
My wife (a licensed realtor) represented us as the Buyers Agent when purchasing our new home. The seller credited her commission back to the Buyer (i.e. my wife and I) during Closing.
1) Would this still be treated as a non-taxable event (reduction in the cost basis of the home)?
2) Is this reportable as income when we file our taxes? Neither our closing attorney or the seller has sent us 1099

1. Yes. The rebate is regarded as a reduction in the pu...

TomD8 — Tue, 04 Jun 2019 19:57:37 GMT

1.  Yes.  The rebate is regarded as a reduction in the purchase price of the home and is not taxable income to the buyer.
2.  No.  Logically follows from (1).
Here's an IRS letter on the topic:  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-wd/0721013.pdf">https://www.irs.gov/pub/irs-wd/0721013.pdf</a>
Note that a 1099 should NOT be issued to the buyer for the rebate amount.

Thanks TomD8!! You've been very helpful!!

wbindeman — Tue, 04 Jun 2019 19:57:38 GMT

Thanks TomD8!! You've been very helpful!!

Re: 1. Yes. The rebate is regarded as a reduction in the pu...

Agill10 — Wed, 18 Dec 2019 21:07:12 GMT

Hi Tom,

The link to the IRS publication does not work, can you repost?

Thanks!

Re: 1. Yes. The rebate is regarded as a reduction in the pu...

DoninGA — Wed, 18 Dec 2019 21:32:59 GMT

@Agill10 wrote:

Hi Tom,

The link to the IRS publication does not work, can you repost?

Thanks!

https://www.irs.gov/pub/irs-wd/0721013.pdf

Re: Very fortunate to find this Question/Answer since I have...

CJ55 — Tue, 01 Dec 2020 06:26:54 GMT

did you ever found out the correct answer for this because I’m dealing with a similar scenario

Re: Assuming the realtor operates as an independent contracto...

CJ55 — Tue, 01 Dec 2020 06:29:47 GMT

Hi Tom,

I have a similar question. It looks like you gave 2 different responses so I’m a little confused. Is this the correct response

Re: Assuming the realtor operates as an independent contracto...

RayW7 — Tue, 12 Jan 2021 16:37:10 GMT

Very good answers listed above but I hope this information might be helpful.

The question regarding a taxable event to the Realtor would depend on how the Realtor commissions are listed on the Closing Statement (HUD).

If the Realtor who represents himself in the transaction as a Buyer Agent did not receive a commission on the sale then there is not a taxable event to the Realtor. The commission would not be reflected on the HUD and you would figure your basis in the property with no commission from the Buyer side.

However, if you did receive a commission on the sale of the property then you should receive a 1099 as income and handle as you would with any other 1099 income as a Realtor. This commission would show up on the HUD and you would adjust your basis in the property for the commission.

Re: Assuming the realtor operates as an independent contracto...

REAgent — Thu, 30 Dec 2021 19:31:04 GMT

Hello RayW7, hope you are well. I stumbled upon this thread doing some research. From what I gather, you said that if an agent represents themselves in the purchase of a home and a 1099 is issued by the brokerage but the agent contributes their commission as a closing cost credit, that the commission would not be taxable income to the agent it would be considered a deductible expense. The closing cost credit would then reduce the basis in the property by the amount of the commission that was credited.

I would like to know if you have any specific section of the tax code that confirms this. I am considering doing this and from what I have seen so far, if I represented another party yes the closing cost credit would be considered a business expense to offset the 1099 income but if I represent myself it is considered a personal expense. I was wondering if you could possibly provide any more detail regarding this, it would be greatly appreciated. Very different tax implications obviously and anything you could provide regarding your source for this would be very helpful!

Thank you in advance.

Thread address: https://ttlc.intuit.com/community/taxes/discussion/if-a-real-estate-agent-is-representing-themselves-as-buyer-s-agent-in-the-purchase-of-a-property-and/00/400459

Re: Assuming the realtor operates as an independent contracto...

REAgent — Thu, 30 Dec 2021 20:00:33 GMT

Hi TomD8, hope you are well. I read your responses to the original poster as well as the IRS letter from the link you provided. The IRS letter, written in legal speak, from what I gather discusses an agent issuing a closing cost credit to their client. The agent isn't obligated to issue a 1099 to the client, the IRS treats the closing credit as a reduction in the basis of the home. The credit issued by the agent can be treated as a business expense offsetting their 1099 income.

My question as the original posters as well, if I were to do this for myself, I am issuing the credit to myself, wouldn't the expense be considered a personal expense and therefore not deductible from the 1099 income? I can't find anything in the tax code about this but from a general rule it would seem to be a personal expense.

Do you have anything additional you can provide on this as to why the IRS would allow you to treat yourself as a client and consider it an expense and reduce the basis in the home vs keeping it as taxable income. Any guidance would be appreciated because there is obviously a significant benefit to being able to reduce the basis.

Thank you in advance for your help.

Re: Assuming the realtor operates as an independent contracto...

DaveF1006 — Mon, 03 Jan 2022 22:24:47 GMT

It depends on if you are representing yourself as a buyer or seller of your own property. If this is the case, you may need to check on the real estate laws of your jurisdiction to see if this is permissible.

Researching the IRS statues, I could not find clear guidance for this question so it depends on the real estate laws in your state or local jurisdiction. If permitted, then you may be able to act as your own broker for your property and this could be a business and not a personal expense.

Re: Assuming the realtor operates as an independent contracto...

REAgent — Wed, 19 Jan 2022 00:00:17 GMT

Hi DaveF1006, thanks for your response. It is permissible in my state to act as my own agent when buying or selling real property. In this case, acting as our own buyer's agent and contributing the commission to our closing costs is permissible. You mention this could then be considered a business expense and not a personal expense. My question is how would I classify it as a business expense considering it would be an expense that would be paid to ourselves. If you can add some additional clarity to how to classify the business expense that would be greatly appreciated. Thank you!

Re: Assuming the realtor operates as an independent contracto...

DaveF1006 — Wed, 19 Jan 2022 00:36:43 GMT

Since this is uncharted territory concerning the IRS, I would consider consulting a real estate attorney so that the laws of your state can be properly applied. At this point, this becomes more of a legal matter and opinion rather than a tax matter. I only say this because there isn't any IRS precedence for this type situation and this is where my advice must end.

[ Edited 01/18/22|04:36 PM PST]

Re: Assuming the realtor operates as an independent contracto...

Mary0111 — Fri, 21 Jan 2022 20:42:04 GMT

My husband received his commission as a credit on the HUD for the home we purchased that he was the Buyer's Agent for in 2021. He received a 1099 from his Broker. I read a lot about this question in the Community trying to find the correct answer as to whether this transaction was taxable income versus a non taxable credit on the purchase of the home where there should be an adjustment in the basis for the commission. I spoke with a CPA who informed me that my husband's commission was taxable income even though it was used as a credit on the purchase of the home, and there was no way around it. I feel that using the commission as a credit on the purchase of the home and thinking it is not taxable income is just wishful thinking. There is a lot of ambiguity in the subject, but no clearly defined rule as far as I can see.

Re: Assuming the realtor operates as an independent contracto...

DaveF1006 — Fri, 21 Jan 2022 21:29:22 GMT

It depends. There is no clear IRS precedence that addresses this type on income. Therefore as a credentialed agent, I would advise to report it as income.to take a conservative approach to the issue. If you don't report it, it may reappear in the form of an IRS audit and since there is no clear precedence for this type of income, the IRS will deny your claim unless you can prove convincingly that they are wrong. You may end up in tax court as a result and create more headaches for yourself than you can ever imagine.

Re: Assuming the realtor operates as an independent contracto...

Mary0111 — Fri, 21 Jan 2022 22:25:18 GMT

Thank you so much for this answer because it allows me to put this question to rest once and for all. I've spent way too much time investigating this issue, and although several people have stated that the commission isn't taxable if it's credited towards the purchase, the 1099 the broker sent tells me otherwise. I believe there is way too much ambiguity regarding this subject, and as you stated there is no clear IRS precedence that addresses this type of income.