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. 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.
Can listing agents pay rebates?
According to the U.S. Department of Justice, forty states, including California, allow real estate agents to give rebates to their clients. The Internal Revenue Service has ruled that a rebate isn’t taxable, but is an adjustment to the buyer’s basis in the house, which effectively lowers the home’s purchase price.
Is cash back at closing taxable?
No, the money you get back at closing is not taxable. The IRS has given guidance that commission refunds do not need to be reported as income.
How does a buyer agent commission rebate work?
The buyer agent typically receives a commission equal to 3% of the home purchase price. A buyer agent commission rebate is a portion of the 3% commission that the buyer agent will rebate to the buyer at closing. Why would a buyer agent rebate their money to me? Buyer agents will rebate their commission to you for a number of reasons.
What can you do with a home buyer rebate?
Home buyer rebates – which, for the purposes of this piece, we’ll also call buyer agent commission rebates – are a term for when a buyer’s agent refunds a percentage of their commission to the buyer. Typically, these home buyer rebates are limited to 1% of the sale price, or less. So what can a buyer do with their rebate?
Is there a rebate for Redfin home buyers?
Redfin offers an average home buyer rebate of $1,500— if you work with an in-house Redfin agent, and if you’re buying in one of their major coverage areas. If you’re buying outside of their main markets, or you’re using one of their partner agents, you won’t be eligible for a Redfin Refund.
Do you have to file tax return for commission rebate?
According to the IRS, regarding Form 1099-MISC, no they’re not. Technically, a commission (aka cash) rebate is a price adjustment, and subsequently not the buyer’s taxable income.
