rebating a real estate agents' bonus to buyer

[alu2008]

Dear all,

Real estate builders sometimes offer the buyer's agent a bonus for a transaction. The bonus is offered in conjunction with the commission. For e.g. The builder may offer a 3% commission on the purchase price and a 1% bonus.

Is the bonus also considered a commission? If so can a part of the bonus be rebated to the buyer as well? Can the agent issue a 1099-MISC to the buyer on the portion of the bonus rebate to the buyer when the entire bonus amount is reported as income to the agent by their broker.

Many thanks in advance for your responses.

[ColeenD3]

Please see this answer from @Critter.

Critter

Tax reporting for commission rebates

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.

[alu2008]

Thanks, @ColeenD3  My question pertains to rebating the bonus. I am aware that agents should not send 1099 to buyers for commission rebates. Does that apply to a bonus as well?

[ColeenD3]

The bonus is treated in the same manner as the rebate.

[Question50]

I am a Realtor and I give commission rebates to my buyer clients to use toward closing cost.  My Broker added the funds I rebated on my 1099 as income, I'm not sure if that was correct.  If so, then does the IRS allow the commission rebates I paid to be listed as a expense under Misc. Expenses?

[Vanessa A]

Yes, this would be a deductible expense for you as a realtor. Yes, you would be able to list these as expenses as other miscellaneous expenses with a description of rebates to clients for closing costs.  

As to whether it was correct or not, yes, since the rebates are coming from you, it would be your expense.