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Posted by Alan on July 30, 2009, 2:12 pm
Please log in for more thread options Thunderbird wrote:
>> Thunderbird wrote:
>>> A discount real estate broker I'm considering using (working on behalf
>>> of me a buyer) rebates 50% of their share of the sales commission
>>> back to the buyer. They will also issue a 1099-MISC to you at the end
>>> of the year for the rebate amount.
>>> Is there a way not to pay income taxes on the rebate amount (and
>>> deduct it from the cost basis of the house when the house is sold
>>> instead)?
>>> Here is some background on how real estate brokerage works (just in
>>> case).
>>> The seller agrees to list their house with a broker for a commission
>>> when the house is sold, e.g. 6%. The listing (selling) broker, via
>>> MLS, agrees to give a percentage of the commission (typically 50%) to
>>> any broker representing a buyer of the house.
>>> For this Discount-broker, the difference is that they will rebate a
>>> percentage of their share of the commission to the home buyer (and
>>> issue a 1099-MISC).
>>> E.g.
>>> Home owner lists 200K house with broker for 6% commission.
>>> The broker lists the house on MLS with a 50% split.
>>> Home buyer represented by Discount broker buys house for 200K.
>>> At closing Selling broker will get 6%*200K=12K.
>>> Selling broker transfers half the commission to Discount-broker (6K)
>>> Discount broker rebates 3K back to the buyer (me), which is included
>>> on a 1099-MISC.
>> As it has been agreed to in advance, the rebate should be
>> reflected on the Hud-1 statement. There was a private letter
>> ruling on this subject that said it is a reduction in the
>> purchase price and that there was no reporting requirement (i.e.,
>> no 1099 should be issued.)
>>
>> Here's part of the summary from the letter ruling that says there
>> is no income and no reporting requirement:
>>
>> In the present case, Taxpayer does not have an information
>> reporting obligation under section 6041 of the Code because, as
>> concluded above, a payment or credit at closing represents an
>> adjustment to the purchase price of the home and generally is not
>> includible in a purchaser’s gross income. Nor does Taxpayer have
>> an information reporting obligation for those amounts under any
>> other section of the Code.
>>
>> http://www.irs.gov/pub/irs-wd/0721013.pdf
>>
>> Note that private letter rulings may not be cited or used as
>> precedent by any other taxpayer. However, as this ruling is on
>> point, it provides you with information on how the IRS would
>> interpret any transaction that has the same set of facts.
>>
>> --
>> << ------------------------------------------------------- >>
>> << The foregoing was not intended or written to be used, >>
>> << nor can it used, for the purpose of avoiding penalties >>
>> << that may be imposed upon the taxpayer. >>
>> << >>
>> << The Charter and the Guidelines for submitting posts >>
>> << to this newsgroup as well as our anti-spamming policy >>
>> << are atwww.asktax.org. >>
>> << Copyright (2007) - All rights reserved. >>
>> << ------------------------------------------------------- >>- Hide quoted
text -
>>
>> - Show quoted text -
>
> Thanks for the great reference.
> In this particular case the rebate will not appear on the HUD closing
> statement.
> I think that the buyer's broker's commission generally doesn't appear
> on the HUD
> (the full unsplit commission is shown as payable to the listing
> broker). There may
> be other reasons why the discount buyer's broker needs to do it this
> way (I think I read
> in some states there have been lawsuits arising from realtor
> associations trying to block
> these types of discounts and the discounters suing based on anti-trust
> laws).
> Strangely, in the "Letter" two cases are presented (1st paragraph on
> page 2), after
> "one or two ways ..."; however, from my reading, it seems that the
> only the 2nd "way" is addressed
> in the letter (when the rebate is deducted at closing), the 1st
> "way" , which exactly fits my case,
> seems to be ignored.
>
> Does the letter address the 1st "way" ?
>
Did you miss the part that said:
"Issue 1 – Payments or Credits are Not Taxable Income"
Wasn't Payments the first way and Credits, the second way?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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