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

[rdgranero]

When we purchased our new home, our real estate agent gave us a commission rebate check and now sent us a 1099-MISC, however, I was reading that it is not considered taxable income. How do I report this income without having issues with the IRS?

[PaulaM · Accepted solution]

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."

[jain-manish]

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

[aanand84]

Hi,

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

[PaulaM]

@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.

[lamhnguyen89]

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

[BillM223]

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.

[lamhnguyen89]

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.

[LeonardS]

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.   

[christyw2]

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!

[AshokYB]

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. 

[VictoriaD75]

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.

[Critter-3]

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. 

[AshokYB]

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?

[Critter-3]

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