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

[sumodog123]

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. 

[Jbucaille]

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.

[CPARealtor88]

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. 

[sumodog123]

@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. 

[yihuih]

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?

[yihuih]

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?

[JeffreyR77]

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

[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?

[DawnC]

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

[sumodog123]

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. 

[yihuih]

"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. "

Let's say Realtor company ABC Realty, Buyer Name XYZ.

Situation 1.  5K buyer rebates will show up in HUD-1, cash purchase

HUD-1 shows. 

a. Showing                                           ABC Realty Commission      15K

b. But Check show:                            ABC Reatly Commission      10K 

c. Broker Credit Show on HUD-1:  There is NO ABC Realty Name, But on buyer side show 5k credit

There is a dicrepency on the written record here in the HUD-1, HUD-1 said ABC Realty made 15k. But check recieved is 10k. 

Situation 2:  5K buyer rebates will show up in HUD-1, loan purchase, it is no closing cost loan, lender give 2500 closing cost credt, if lender agree to share Broker Credit field on HUD-1

HUD-1 shows. 

a. Showing                                           ABC Realty Commission      15K

b. But Check show:                            ABC Reatly Commission      10K 

c. Broker Credit Show on HUD-1:   7500 (if lender agree to share this field)

There is NO ABC Realty Name, But on buyer side show 7.5k credit 

There is a dicrepency on the written record here in the HUD-1, HUD-1 said ABC Realty made 15k. But check recieved is 10k.  Broker Credit is sharing between 2 company. How IRS recognize which company give how much credit?

Situation 3:  loan purchase, it is no closing cost loan, lender give 2500 closing cost credt, Lender refuse to share Broker Credit field on HUD-1 with ABC Realty

HUD-1 shows. 

a. Showing                                           ABC Realty Commission      15K

b. But Check show:                            ABC Reatly Commission      15K 

c. Broker Credit Show on HUD-1:   2500 

d. ABC Realty cut a check:               To buyer 5K

There is a NO dicrepency on the written record here in the HUD-1 and check, both HUD-1 and title company check said ABC Realty made 15k. ABC Realty Company have to cut a check after closing for the amount 5k to buyer. 

Situation 4: NO buyer rebates

HUD-1 shows. 

a. Showing                                           ABC Realty Commission      15K

b. But Check show:                            ABC Reatly Commission      15K 

Under all 4 situations, HUD-1 Indicate ABC Realty Commission is 15K. How IRS know which situation we are in? First 3 situations are all have Rebates, but record showing ABC Realty made 15K on written record of HUD-1 which should be forward one copy to IRS. 

To me, I prefer to sent Buyer 1099 misc form with 5K in line 3. And then buyer using "Less Common Income" to take back and tell IRS, they are going to apply it toward property basis using decription.  Have buyer decide to claim 5K as property basis or income. 

There is NO double dipping if Commission Revenue total is 15k to file tax. The system will reduced 5k in 1099 misc from 15k. Of course, if we report Total Commission Revenue is 10k, then sent out 1099misc, it is double dipping.

[justin.p.ashwort]

I can't tell whether you or someone else already answered the following question. I received a 1099-MISC from my bank/lender, but I was never given a check. I think this was just a waiving of some fees when I purchased the home. Should I have them issue a corrected 1099-MISC? Or do I even need to report this?

Thanks in advance.

[ToddL99]

You need to contact the bank/lender that issued the Form 1099-MISC and get an explanation for why it was issued.  In the meantime, you should wait for an explanation  (or correction) before deciding how to report the 1099-MISC. The IRS will be looking for this on your tax return, so not reporting it is a risky option. 

"Waiving a fee" does not qualify as income to you; it would just be a reduction in whatever cost the fee was for.

[mcw]

Hello @Critter-3 

Thanks for your instruction. I am trying to follow but I am confused about how to make a negative entry.

I thought income should be always a positive number but to my surprise, I can input a negative number.

There is no information about Payer's TIN as regular 1099-misc reporting has.

I am wondering how IRS knows these two income points to the same payer and transaction.

[Critter-3]

@mcw 

Not sure what you are trying to do but if you have to negate a situation that is incorrect and the issuer of the form will no make the correction then using the Sch 1 line 8 is the way to do it.  Could the IRS question this in the future .. yes they can ... so be prepared with an explanation of why you made the entry you did on the return.