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

[KC444]

Hello,

I'm facing the same issue. My realtor issued a 109-NEC and won't issue a corrected form. In this case, can I e-file without the 1099-NEC form and later file a mailed amendment with the form and statement attached ?

Thanks,

KC

[DaveF1006]

Yes, but you can file the return now.  Here is how to do it. 

1. Go to federal>income and expenses>all income>>show more 
2. Other common income> Start
3. Form 1099-NEC,>start
4. After entering the 1099, it will ask the reason for it, say real estate commission rebate
5. Does one of these uncommon situations apply say This is not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby (this is not common).  
6. This will report as other income on line 8Z in Schedule 1 and not as self employed income.

Now we need to exclude this income, and this is how.

1. Go to federal>income and expenses>all income>>show more 
2. Less Common Income> Start
3. Miscellaneous Income,>start
4. Other reportable income>start
5. Next screen asks Any Other Taxable Income>yes
6. The next screen will allow you to report the income with a brief explanation.
7. Under description, Enter 1099 NEC income already reported that is Real Estate Commission Rebates, which is excluded Income. Then enter the amount of the 1099 NEC as negative number. 
8. this will now appear in line 8Z in Schedule 1 as a negative number that offsets the original 1099 NEC income reported.

@KC444

[kpatel12]

Hi,

I received 1099-MISC from realtor for rebate, Can i use your step to report and negate 1099-MISC instead of 1099-NEC?

Thanks

Kalpesh

[Critter-3]

Yes you can.  

[lasorbonnerlk]

Yes, a 1099 Misc. must be reported as income.

[dhinesh]

Thank you, your guidance is really helpful. 

@DaveF1006

[Cxfooo]

If following your approach, enter the negative income to negate 1099misc, then what about the cost basis of the investment? Should one modify it as well?

[JamesG1]

Yes, in your records, the cost basis of the investment should be updated.  

Real estate commission rebates are not taxable income but reduce your home's basis.  

As an example, if you purchase the home for $200,000 and receive a $1,000 real estate commission rebate from your realtor, your cost basis in the  new home becomes $200,000 - $1,000 = $199,000.

The problem comes in reporting the 1099-MISC which has been issued to the IRS.  It would be preferable if the 1099-MISC would be withdrawn by the issuer.  

If the 1099-MISC is not withdrawn, follow the steps below to report the income and reverse the entry.

• Select Federal from the left side menu.
• Click on Wages & Income.
• Scroll down to Less Common Income.  Click Show more.
• Click Start / Revisit to the right of Miscellaneous income….
• Click Start / Revisit to the right of Other reportable income.
• At the screen Other Taxable Income enter a description such as 'Real estate commission rebate' and the dollar amount.
• At the screen Other Miscellaneous Income Summary, select Add another miscellaneous income item.
• At the screen Other Taxable Income enter a description such as 'Real estate commission correction' and a negative number.

The entry will be reported:

• on line 8z of Schedule 1 of the Federal 1040 tax return, and 
• on line 8 of the Federal 1040 tax return.

Make sure that you keep records of all transactions. Later, you may need to demonstrate to the IRS that this is not taxable income.

View the entries at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets.

See this TurboTax Best Answer.

@Cxfooo 

[Cxfooo]

Thanks in advance! Could you please show how to adjust the cost basis for the investment in TurboTax? Assuming one already reported 1099nec/misc and also negated it as the thread showed. 

[JamesG1]

If the real property purchased is your personal home, make note in your personal records for your personal home.

There is no entry to make in TurboTax until the sale of the personal home.  At the time of sale of the personal home, you would report the cost basis of the personal home as $199,000 instead of $200,000.

If the real property purchased is a rental property or business asset, you will report the cost basis of the business asset in TurboTax when you enter the Asset in the self-employment activity or rental activity.  The rental property or business asset is then depreciated using the $199,000 cost and not the $200,000 cost.

If the real property purchased is an investment property, there is no entry to make in TurboTax until you report the sale of the investment.  At that point, you will report the sale of a capital asset.  You will report the cost basis of $199,000 cost and not the $200,000 cost.  You would enter the proceeds of the sale to compute a capital gain or loss on the sale of the investment property.

@Cxfooo 

[RG1606]

This document says that "rebate at closing" is not taxable. How about any additional money the buyer receives after closing by check?

[JulieS]

No, a rebate is not taxable income unless the original expense was something you deducted in a prior year. 

If this is related to your primary home, just keep this information in your financial records.

If the property is a rental or business use property, you need to reduce your deduction by the amount of the rebate. 

For example, say you bought a home to rent to others. You paid $10,000 in real estate commission, but your realtor refunded $2,000. When you set up your rental, you would report the commission as $8,000.

[rkesireddy]

Hello Experts, can you please take a look at each of the scenarios and say you would still like to consider it as rebate / concession where 1099 is not required to be issued to buyer?

There are couple scenarios here (OfCourse many, but simplifying for sake of conversation)

1.) Builder / Seller pays the commission to broker and Broker gives a Disbursement Agreement to Closing agent, by which lender uses that form to help use the rebate money as price adjustment or closing costs. 

2.) Builder / Seller pays the commission, but buyer elects to buy with Cash, now the commission given to buyer agency is considered as agency income. And if we pay out to buyer from this income, it's not a rebate anymore it's like sharing broker's income with someone else. 

In scenario 1.) its rebate and in Scenario 2.) it is not a rebate.

How I view Rebate / Concession:
Rebate is something I charge at first and reduce later, in this case realtor / brokerage is not charging anything to customer, so giving back from brokers income is not considered as rebate.

[Sabquat]

Similar situation here. I have referred PLR 1571111-06 to my realtor; now, he is confused as well. But he told me, he need report the commission rebate in some sort of form; otherwise, he will be obligated to provide tax on rebate money. Could you please tell me which form should he provide me (other than 1099-NEC), so that neither of us need to provide tax on rebate money?

[KrisD15]

In my opinion, the Broker should have let Title handle that as a credit at closing, but I am not a Real Estate Attorney. 

If the Broker/Agent received the funds, and then turned around and gave you a rebate, they might use Form 1099-MISC.

Explain to the Broker/Real Estate Agent that they should use 1099-MISC if they need to issue a tax form.

1099-NEC is for Non-Employee Compensation, which is another way of saying "Sub-Contractor Fees". Income on Form 1099-NEC needs to be reported as "Self-Employment Income" which in your situation it definitely is not.  

@Sabquat