How to file 1099-NEC from Realtor rebate? Is it taxable income?

[Young L]

We purchased a new house in Texas last year. The realtor give us a rebate after closing and sent us a 1099-NEC form. The rebate is not included in the closing statement. The reason is that the loaner stated the incentive already reached the limits that cannot put the realtor rebate in. A few questions we have:

1) Is this rebate taxable income or nontaxable income? I saw some post said it's not taxable income, instead, it's considered as an discount/adjustment of house purchase. Is it true even if the rebate is not in closing document and we receive after closing?

2) How do I report this 1099-NEC in Turbotax? When I enter a 1099-NEC, it asks what type of income. None of option is correct to me (screenshot below), and I can't skip it. Realtor told me to choose the first option, but I am not self employment....... so confusing

3) Some posts say report 1099-NEC, then make an adjustment back with the Miscellaneous Income(with negative amount). Or, don't report in Turbotax, but file it in paper with the 1099-NEC and write a statement with this (https://www.irs.gov/pub/irs-wd/0721013.pdf) to explain why this is not included.

It's a little long, thanks in advance!

[KrisD15 · Accepted solution]

1. No, the amount reported on Form 1099-NEC (from your description) was a rebate and the real estate agent never should have issued that form to you. 

It depends who paid the "rebate" the Agent or the Seller. If the Agent paid it, they would simply reduce their income by the amount they gave you. If it was the Seller, they would reduce the sales proceeds. Either way, you would reduce your basis (the purchase price you paid) for the home.

Form 1099-NEC is Non-Employee Compensation, which means income earned. Earned income is subject to tax. You did nothing to earn that income. There is no reason you should select option 1. Option one will charge you income tax as well as Self-Employment tax. (FICA TAX/Social Security tax on the income)

In TurboTax, to get trough the program, you can select "Hobby" to by-pass Self-Employment tax. 

It will. however, be added as income.

You can then do the negative adjustment.

You also have the option of not entering the form on your return and paper file with a statement. This option might slow down the processing of your return. 

Third option is to have the Broker void the 1099-NEC completely. 

HERE is a thread with a similar issue. 

HERE is the link to the Texas Real Estate Commission 

After entering Form 1099-NEC (and selecting HOBBY)

go to:

Wages & Income

Less Common Income

Miscellaneous Income, 1099-A, 1099-C    

Other reportable income    START

 Type " Rebate on 1099-NEC" or something similar for the Description 

Enter the amount of the rebate AS A NEGATIVE NUMBER  (put a minus sign in front (-) )

[Young L]

Hi Kris,

Thanks for the details explanation.

Just curious about the "rebate". We already got the discount from seller(builder and loaner) and put it in the closing statement. The realtor got 3% commission from the seller, and then gave 1% to us. Based on your explanation, it seems the realtor paid the "rebate"? He issued the 1099-NEC to us (it should not as you said) in order to prove the reduction of his income(from 3% to 2%), for his taxes return purpose maybe? Am I correct?

"You would reduce your basis (the purchase price you paid) for the home."

This does not affect on Tax Return, but when selling the house in the future, right?

Thanks again!

[RobertB4444]

Yes, the realtor issued the form to you to show a reduction in the commission that he paid since the realtor gave the money to you.  It still shouldn't have been issued on that form.

Yes, the only thing this effects is the amount of profit that you make when you sell the home.

@Young L