broker commission rebate tax consequences

factors in to your basis.

nychomeowner,

Ask your CPA.

I cringe when people ask strangers on the internet about law or accounting. I'm not being harsh (and hope you don't misconstrue), but these matters are best handled by pros.

We're not talking about the best place to get a bagel...

justmy2

vslse65, calm down. Most people who ask specific questions like this are not seeking professional advice; they're just looking for some initial direction before asking the question for "real" (and being zinged by a $1200 bill).

Sometimes, a question is just a question.

Keith B. has researched this topic pretty thoroughly, and all the feedback he has obtained indicates that a commission rebate to the buyer is NOT taxable income. That's why we don't issue 1099s to our clients. Naturally, you should check with your accountant and attorney to confirm that they share this view.

As for the effect of the rebate on your basis, a dollar-for-dollar reduction of your basis seems logical. Since the rebate doesn't show up on any paperwork from your closing, you are basically on the honor system to adjust your basis. All I can say is that's probably the right thing to do. Again, consult your accountant.

Agree with West81st and vsle65 -- definitely best to consult your accountant and/or lawyer. It is my understanding as well that rebates are not taxable as income, but rather deemed a reduction in basis. However, since the rebate is not reflected on any closing document, when I give clients rebates, I deliver the rebate to the client with a letter that describes our prior agreement regarding the rebate so that it is evidenced somewhere tangible. This protects both me (so that I don't get taxed on the rebate) and my client (who now has a piece of paper evidencing the source of those funds).

Dan Gotlieb
Digs Realty Group
digsrealtynyc.com

Yes Dan. We also give our clients a signed letter and of course the check from my company is clearly marked as a commission rebate. The IRS has also ruled on an individual case that was brought by REDFIN Realty, of course that was for that particular buyer, however it does give an indication of their position.

Keith Burkhardt
The Burkhardt Group

thanks everyone for your responses. happy to hear the rebate should be seen as a reduction in basis. of course, i will run this past my accountant as well.

I'm not sure why real estate professionals are always giving advice about when to consult your accountant or when to consult your lawyer. Are they really qualified to tell you when to consult someone? Are they getting kickbacks from accountants and lawyers?
I think they should just tell people what they know, what they don't know, and offer context of their qualifications about what they do know.
nychomeowner, make your own choice if you run this by your accountant.

Gothamsboro: In New York, unauthorized practice of law is a good way to lose a real estate license. That's why you see the "consult your attorney" disclaimer on everything that might be construed as legal advice.

I agree with Keith B 100%. I have done quite a bit of work and research on this as well.
GARG Real Estate.
212-500-0899