$25,000 gift card with a $26,000 price increase!

That is absolutely hilarious!

"Get a $25,000 Gift Card! Yes, as simple as that: own this beautiful two bedroom / two bathroom with a private terrace and enjoy a $25,000 gift card."

These things are illegal selling any other product. If any industry is ripe for changes in ethics laws, its the real estate industry. As I posted elsewhere, it is impossible to measure an 800-square foot apartment and get it to come out to be 950 square feet. It is a deliberate lie. And raising the price to offer a "sale" is illegal if it's an iPod - why not real estate?

Yeah, and don't forget to call 1-800-ASSHOLE and we'll throw in a set of ginsu knives absolutely FREE! But hurry, this limited time offer won't last.

Wouldn't the lender have an issue with an increased loan value because of a $25k gift card? Why not sell it for $1M and give the buyer $350k in cash? Moronic.

Since they raised the price by $26,000, can't they at least offer a $26,000 gift card? I'm stil being short changed by $1,000.

JuiceMan - overnight LIBOR is back up to 0.7%, from 0.4% two days ago.

There goes that Rosy Scenario of yours.

Where is Humbolt street????

I know steve. It kept me up all night.

OK - I don't understand the bruhaha. What is so weird about a buying incentive. If they said they will pay for your closing cost would this even get the same attention? $25k is $25k.
And how are you being short changed Alpine292? If they didn't offer a buying incentive you would just think it is something you can afford? You make it as if somehow RE properties have a fixed 'true' value like a gallon of paint in a weekly flyer.

I think thats a Dolly Lenz exclusive..Remember, she is a VICE CHAIRMAN of a very influential real estate firm..

The gift card is taxable as income.

No, the gift card is a return of capital.

"the gift card is a return of capital."

No it's not. When you do settlement, the deed of purchase will show the full price you pay, and all taxes will be paid on that, and that's the amount you will have to finance. The 'gift card' is a separate deal, taxable as income: they didn't reduce the price of the house, they 'gave' you $25,000. The very fact that it's called a "gift card" is the problem.

Gifts are taxable at that amount.

Return of capital

http://www.answers.com/topic/estate-and-gift-taxation

As long as the deed of purchase shows the purchase price and the gift card is separate, it is a gift.

And even if it weren't, would you want to fight the IRS to prove it? It's just a lame PR stunt.

Long time, DaBulls, but your analysis has gotten no better.

Curbed picked up this story, citing Streateasy, then The Real Deal picked up the story and cited Curbed. This sales gimmick story appears to have legs.

I didn't provide analysis stevejhx.

Fact doesn't require analysis.

But if you'd like, hire your own tax advisor. Personally, I wouldn't trust a poster on streeteasy just because the person posts a lot (and certainly like me if the person posts infrequently). Nor would I trust answers.com or investopedia or wikipedia for tax advice.

And, I don't disagree that it is a lame PR stunt. But it doesn't make your tax opinion correct.

You'd have to have a pretty slick tax accountant to demonstrate ROC in this case.

stevejhx, DaBulls, Squid ... you think, you know, or you just like talking?

What is ROC?

Well I do like typing, but I know: IF the closing statement shows the actual purchase price and they give you an extra $25,000 (for furniture or whatever) apart from that, then it's the same as if they give you a car or a trip to Mars. IF the deed closing statement shows a price adjustment, then it MIGHT not be taxable, but I wouldn't want to mess with the IRS about it since they call it a "gift."

And in terms of marketing, it's just lame.

Seems like taxable income to me

and lame.

and desperate.

DaBulls is DaRight. The gift card is not taxable income, it is an adjustment in the purchase price. The IRS has issued a PLR that real estate rebates are neither reportable nor gross income to buyers. This seems to fall in the same general category.

For the details see: http://www.rehava.com/files/0721013.pdf

modern, it's not the same thing: "The IRS determined in Ltr. Rul. 200721013 that certain commissions received by real estate brokers that were passed along to their home-buying clients were neither reportable payments to the brokers nor gross income to the clients."

It's not a commission, it's not received by the real estate broker. Otherwise, a perfect analogy.

IF it is recorded as a reduction in the purchase price it is NOT reportable. But IF it's reported as a separate payment (which is what it seems) then it's a gift.

One key point is it says it's a "gift card." Gift cards are taxable income.

Another question to consider is how lenders may feel about financing a gift card. Know many lenders that are willing to hand cash to the buyer outside of a HELOC? I don't.

""What is ROC?""

Return of capital.

And yes, any gift over $12k is taxable. An item described as a 'gift card' sure sounds like a gift to me.

But let's be real here--this is nothing but a gimmick. Any buyer in his right mind is going to insist on a price cut in lieu of some stupid so-called 'gift card'. I mean, how would that even work? They print up a piece of plastic with a smiley Santa face on one side and "Happy Holidays! Here's $25K Just For You!" on the other? Give me a break.

All this means, really, is they're willing to shave $25K off the price up front. Why they need to create a gimmick to do that is beyond me, though it's clearly getting their uninspiring listing some much-needed attention.

stevejhx,

What the rebate is called is irrelevant to the IRS. They look to the economic substance of the transaction and whether it is called a cash rebate (as in the PLR where it was ruled non-taxable and non-reportable) or a "gift card", which is essentially different in substance than a cash rebate, is irrelevant. I have posted a link to a tax journal article which discusses an IRS PLR that is on point. No need to debate further, you can have all the theories you want, what matters is how the IRS views the transaction. If you have a link to another IRS Revenue Ruling or PLR that says otherwise, please post it.

The IRS has also ruled that rebates from car dealers are not taxable, merely a reduction in the buying price. So whether it comes from the agents commission or not is irrelevant to the economic substance of the transaction and irrelevant to how the IRS will view the transaction.

To add to Modern, the fact they are giving tax incentives means the price is negotiable. If you prefer ask them to buy some financing points. The saving can be huge (tens of thousands) depending on your long term plan. Even in the short term. Point is, Curbed couch RE commentators are blinded by the fact the the asking price has gone down and then up. Which does not change the fact that is a plain ole buying incentive - like upgraded appliance, fee free, custom closet, etc. It is as 'lame', 'sneaky' or 'underhanded' if they offered your free Radiant heated bathroom floors or pay for your closing cost. If you don't know how to navigate through this, I highly suggest asking a RE expert and/or lawyer. Getting it from StreetEasy/Curbed bloogers and running with it is why this economy is in the sh!t hole.

Modern, just because you post a link does not make it relevant. I've already quoted part of what the letter says. The title of the letter is "Tax Treatment of Commissions Passed Along by Realtors to Buyers."

Show me in the "gift card" case where commissions are being passed along by realtors to buyers. Nowhere. It is a "gift card." Its not coming from the realtor. It's coming from the seller. You are paying the seller $100, the seller pays the real estate commission on $100. The seller then gifts you $25. You have three separate transactions, taxed separately.

You are correct that the IRS looks at the "economic effect." That entails looking at what you're doing: giving a gift card. The economic effect is defined by the real estate commission. If it is 3% of $100, then the sale price is $100. If the gift card does not reduce the amount of the real estate commission, then it is not part of that transaction.

What you are claiming is that the tax effect is determined by netting. It is not. Ever. In fact, until about 15 years ago netting was illegal, and you still need a separate agreement to net, and each party must assume its tax obligations under the netting agreement. If I owe you $50 for work performed, and you owe me $50 for work performed, we don't have the joy of paying a net $0 in income tax. We each pay income tax on our $50 earned.

"It is as 'lame', 'sneaky' or 'underhanded' if they offered your free Radiant heated bathroom floors or pay for your closing cost."

That's entirely different. All of those things change the price. The purpose of $25,000 gift card is NOT to change the price.

stevejhx:

Sounds like you don't have much experience with IRS tax law. And you are getting overly hung up on the use of the word "gift".

Let me make it simple. it's not a "gift", it's a rebate. Period. If you buy the apartment, you are getting a rebate. A "gift card" is same as cash back, no different. The IRS doesn't care what you call it. And whether it comes from the agent's comission or the seller doesn't matter either to the IRS. The IRS follows the cash, you give the seller the extra $25k, they give it back, that is a rebate.

The IRS has ruled that rebates are not taxable, you can make up whatever theories you want, but they aren't worth a damn compared to IRS Rev Rulings and PLRs.

"Sounds like you don't have much experience with IRS tax law."

Actually, I used to be an auditor with Price Waterhouse and Bank of America, so I do have some experience on the matter.

"The IRS has ruled that rebates are not taxable."

Rebates are not taxable because they are considered an adjustment to the purchase price. If the purchase price is adjusted, so would the commission be. If the commission in this case is not adjusted, then there was no adjustment to the purchase price.

"The IRS follows the cash, you give the seller the extra $25k, they give it back, that is a rebate."

Not if the seller pays a commission on it, not if the amount recorded is the full amount of the purchase.

The purpose of this lame scheme is specifically NOT to adjust the purchase price. Therefore, it is not a rebate.

PLRs are not necessarily valid for all similar cases. That's why they're called "private." In your case the subject matters aren't even remotely similar.

The buyer does not pay the commission to the broker. You know that right? Therefore it is irrelevant to the buyer what commission is paid or how it is calculated from a tax standpoint. And in fact you hve no idea if the "gift card" is coming from the seller or the agent or the agent's dog, but the end result is it does not matter to the buyer or to the IRS.

I was just thinking more about this. At first I thought that it was a lame deal but it is not terrible.
The price is still lower than lower than the original purchase price and if a buyer is comfortable with the price then they could just consider it a low/fixed rate home equity.

Essentially, you are getting $25,000 for 5.75% fixed over 30 years (or whatever the term of your mortgage). Also, if you are buying jointly it is not as big of a tax issue because it can be divided amongst the two buyers (12,000 each - you would only pay tax on $1,000). And i'm fairly certain, given the climate, that the seller would be willing to take $12,000 off of the purchase price and just give you $12,000 less.

stevejhx
6 days ago
ignore this person "Sounds like you don't have much experience with IRS tax law."

Actually, I used to be an auditor with Price Waterhouse and Bank of America, so I do have some experience on the matter.

Here we go again with Steve's experience as an auditor with PWC. Considering you are not a CPA, all you were is a checker. You have no tax credentials. Nor do you have accounting credentials. You might be an honest guy who can look at numbers in a column to see if they can add up and be good at ticking and tying, but you were not on the partnership track at PWC.

Most non-tax professionals are very very careful to disclaim any tax advice.

If its a rebate, don't you have to subtract it from the cost basis of the place? Meaning if you have a significant cap gain when you sell (don't get me started there), you might be paying taxes on an extra $25k...