I received a 1099-MISC from my real estate agent for a commission rebate. Is this considered taxable income for me?

Real Estate commission rebates are not taxable income, but do reduce your home's basis. The realtor needs to issue you a corrected form.

See TurboTaxMichael1's answer for how to file if the realtor does not issue a corrected form.

"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."

My realtor also issued 1099-MISC for commission rebate. Do I ask them to issue a corrected 1099-MISC, or some other form?

Hi,

how did you report that 1099, i hope we dont have to pay tax on that?

@jain-manish, @aanand84   

See above answer. Ask for a corrected 1099-MISC. If that doesn't happen then you can either file a paper return with the explanation given above, or enter the 1099-MISC as reported, then make an adjustment in the Other Income section of Schedule 1 as a negative sum. In this way, the reporting of the 1099-MISC form is satisfied, but the effect will be zero.

Could you advise on how to do this via TT? Also, if the realtor could amend the 1099 he sent to me, what should he change? Is it still a 1099 misc or something else? Thanks

If the realtor is amenable to changing the 1099-MISC, the realtor would have follow the instructions in 2019 General Instructions for Certain Information Returns. 

If the realtor filed the original 1099-MISC on paper, please see "H. Corrected Returns on Paper Forms".

If the realtor filed the original 1099-MISC electronically, please see "F. Electronic Reporting".

Note that the realtor should not have filed a 1099-MISC or sent you anything.

Thanks. I just don't know how to convey this whole message to my realtor/their CPA because I asked them once and all they told me is that's my income and I'll need to pay tax for that.

Yes your realtor/CPA is correct.  If you received a 1099-MISC for a real estate commission, that is income you received from your real estate broker.  You will report this income on Schedule C along with your other income and expenses.   

This is very helpful as I find myself in the same situation.  However I have one more question along these lines...I already filed my return electronically and then recvd the 1099-misc.  Do I just send a letter outside of my return (assuming theres and IRS mailbox somewhere for this? :)) or do I need to ammend my return? If I need to ammend the return, Turbotax doesn't seem to have a place where I can say I recvd a 1099 but not make it change my tax owed amount.  Not sure about the mechanics of how to go about letting the IRS know that this 1099-misc isn't taxable income.  Thank you for your help!

After reading all the replies I'm confused if home buyer needs to ask real estate broker to correct the 1099-MISC form for the rebate or the home buyer needs to consider it as taxable income. Latest expert reply seem to contradict what was suggested last year. Thank you in advance for the help. 

In today’s difficult housing market it has become commonplace for brokers to offer buyers a cash rebate of a portion of their commission. A common question many brokers and buyers have is whether such rebates are taxable income that must be reported to the IRS on Form 1099-MISC. The answer is no.

The IRS says that a cash rebate paid to a buyer of property at or after closing is an adjustment in the price, and is therefore not taxable income to the buyer. Rather, the buyer should subtract the amount of the rebate from the home’s basis. This will, of course, increase any potential profit when the home is sold.

Since they are not taxable income, such rebates need not be reported on Form 1099-MISC. Thus, brokers should not send 1099s to buyers reporting such rebates. Any buyer who has received a 1099 that reports such a payment in error should ask the broker to correct or withdraw it.

If a broker sends a 1099 to cover their butts (even though it is unneeded) you can simply enter it and then make a second negative entry to zero out the amount ... make the IRS happy.

You can report it as other income on Sch 1  line 8. Here's how to enter it in TurboTax.

• Click the Federal Taxes tab ( Personal in the Home & Business version)
• Click Wages & Income. (Personal income in the H & B version)
• On the screen "Your 2019 Income Summary," scroll all the way down to the last section, "Less Common Income."
• Click the Start or Update button for the last topic, "Miscellaneous Income, 1099-A, 1099-C."
• On the next screen, "Let's Work on Any Miscellaneous Income," scroll down and click the Start or Update button for the last topic, "Other reportable income."
• The next screen asks, "Did you receive any other taxable income." Click Yes.
• On the next screen, "Other Taxable Income," enter a description and the amount. Click Continue.
• On the next screen click Done.

The income will be reported on Sch 1 line 8 with the description that you entered.

NOW REPEAT these steps and make a negative entry to void the income. 

Thank you for the detailed response, much appreciated.

When I attempt to enter details about 1099-MISC in "Other Taxable Income" section TurboTax says "Do not enter income reported on Form 1099-MISC". Shall I still proceed and enter 1099-MISC details and then a negative entry with the same amount to achieve zero sum?

Remove the other incorrect information entered in the 1099 section and then follow my posted instructions to handle this issue. 

Thanks for your post. Since Rebates should be paid at closing, there is no reason for your realtor to give a 1099. If the commission was $15K and the Realtor agreed to pay $5k towards closing cost, the Realtor will only show income of $10K. They can't double dip and try to write off another $5K. IRS Publication 525 explains this. 

I’m a RE Broker,

to be considered “commission rebate“ and not be taxable, that commission rebate must have been disclosed through an addendum (Signed by everyone) before closing and MUST appear in the closing statement when you close on your home. And that commission rebate Is applied on the “gross” commission, which means that it takes out a portion of the Broker commission because it is applied before the split of the commission between the agent and his broker. And when such a rebate happen, it is before tax for the agent, because he doesn’t make tgat earning.

If your agent gave you a check after closing, then this is NOT a rebate, but a kickback and it is illegal, unless he gives you a compensation that would be considered a miscellaneous income for you, and would be on a 1099. In this situation your agent is actually paying taxes on this commission before he gave you a portion, so it is normal to send you a 1099, otherwise it would be illegal for him to send you that money afterward or it would be considered “kickback”, which is illegal. Also that money is strictly coming from his net commission, so in this case he doesn't need the authorization of his broker.

You know nothing about tax, stick to real estate and leave the tax advice to the tax professionals because your advice is wrong.  Have you even read the IRS definition of earned income?  What work/service has the buyer done for that agent that the rebate or kickback as you call it becomes earned taxable income to the buyer?  It doesn't, the rebate is a reduction of cost basis and not taxable to the buyer.  The agent should reflect the rebate made to the buyer on line 2 of the Schedule C.  And yes, I'm a realtor who is also a licensed CPA. 

@CPARealtor88 Besides the harsh words, what information were you correcting. I am guessing the workaround to issue a 1099 by claiming that the buyer did some work for you. I agree, any payment to the buyer outside of closing would be illegal.

I am curious about why you think that the agent should reflect the rebate on line 2. This is how i see it. The commission for the buyer's broker is $15K. Broker as agree to rebate $5K to buyer at closing. Broker has a 60/40 split with agent. Broker reports $10K and reflects a $6K allowance on line 2 for sales person commission. Agent declares $6K in commission. The broker never paid the buyer. That $5K came out of the closing. You are the expert, correct me if I am wrong. 

Dear CPARealtor88:

I am managing broker. I have more than 20 agent in my office. Here is my question, I had been ask many CPAs in the past, some said the rebate we pays to buyer need to report to 1099misc line 3. Some of them don't have answer. My questions to you is 

1. If rebates appears on the HUD-1 Settlement Statement under broker credit,  on HUD-1 my brokerage company commission is always is overall commission, but check my brokerage recieved is already minus rebate amount. How IRS know we didn't made all amount if we don't report any form to IRS and tell them we didn't get this rebate portion? According to my understanding, all HUD-1 sent to IRS. 

2. Under broker credit field on HUD-1 Settlement Statement, if the sell is buyer obtaining loan, normally this field was using by lender to include refund of closing cost to make zero closing cost loan. Therefore, sometime, lender refused to share this field with Real Esate Broker. Then the check my brokerage recieved will be overall commission, then we have to cut a rebate check to buyer after closing. Now, If we don't issue any 1099 report to IRS, I can very sure 100% rebates buyer will be simply ignore this amount. Then IRS will lost many tax revenues. How do you think IRS sees it and make sure buyer will either report to reduce the basis of real estate or other item?

3. Many years ago, when Redfin.com first developed, they were offering up to 50% rebates and they put a IRS issue special rule to Redfin only (Redfin paid someone CPA or Lawyer 10000 to get this letter) and said they don't have to report 1099, but that letter didn't said the letter is applying to all real estate agent. The letter was only applying to Redfin.com at that time, after that there are many agents who had following the redfin.com rule and not to report 1099 and later got audit and have to pay penalty. I were like to know why agent get audit and had to pay penalty. Those agent has put negative words on redfin.com for this page, later redfin.com closed this pages. All of those agents who had been get audit and paid penalty and has been always send out 1099 ever since.

My biggest question is that HOW CAN IRS ENFORCE BUYER REPORT THE REBATE AS ADJUSTMENT OF REAL ESTATE BASE?

Regarding to this 

"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).

Does it mean each of realtor need to file one letter PLR 157111-06 for each property sold with buyer rebates?

An IRS Private Letter Ruling applies to only one taxpayer based on their specific request and facts and circumstances.  It does not apply in general. A decision in a PLR can be made to apply to a broader group by the IRS issuing a Revenue Ruling.  One cannot cite a PLR as an authoritative reference.  

@yihuih

Schedule C Instruction of Line 2:
"Report your sales returns and allowances as a positive number on line 2. A sales return is a cash or credit refund you gave to customers who returned defective, damaged, or unwanted products. A sales allowance is a reduction in the selling price of products, instead of a cash or credit refund."

Buyer didn't pay buyer Agent commission. How can we said it is return?

There is a rebate and refund category in the Self-Employment Income section that will report the amount of the returns on Line 2.   This is money you received but then gave back to a customer—a refund for a returned item, a rebate, or a discount.   It will be removed from you business income.      @yihuih

Hi Dawn,

That would appear to be correct, assuming that you were credited with the entire commission. However, when it comes out of closing, you are only paid commission minus rebate. The rebate is credited to towards the buyers closing costs.