Tax Reporting for Commission Rebates

by Stephen Fishman

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. This is great news for investors who are building their real estate property portfolio and cashing in on rebates when they buy property. They will follow standard IRS rules when selling properties.

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.

Stephen Fishman is a tax expert, attorney and author who has published 18 books, including Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants; Deduct It; Working as an Independent Contractor; and Working with Independent Contractors. He welcomes your questions for this weekly column.