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

Forum|Forum|6 years ago
June 1, 2019
5 replies
0 views

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?

TurboTax Premier Mac

Best answer by PaulaM

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."

PaulaMAnswer

Employee

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."

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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?

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.

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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.

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.

lasorbonnerlk

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

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

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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.