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]

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?

[TomD8]

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.  

[californiastanda]

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?

[TomD8]

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

[wbindeman]

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

[TomD8]

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.

[wbindeman]

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

[Agill10]

Hi Tom, 

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

Thanks!

[DoninGA]

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@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

[CJ55]

Hi 

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

[CJ55]

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

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.

[RayW7]

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.

[REAgent]

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...

[REAgent]

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.

[DaveF1006]

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.