About Rebate

[zubs]

Give the full rebate back to the buyer, and then have the buyer cut you a check on the untaxed amount as a gift! 

 

[WTTCHMN]

As many have said, no reason for an agent to not give a rebate on new homes as it requires very little work. It also provides good will for future business.  USCT kicked back a significant amount of the rebate on my new home  (he's responsible for paying taxes on the full amount) and while he may not have made "that much," his gesture led to another opportunity with me to list my old house where he made a killing -with very little work also since this is Irvine afterall

...Then he became the King of WBE and and lived happily ever after (after my listing closed, he was contacted by several sellers in the neighborhood and closed on all). #desperate #USCTforPresident2016

I'm pretty sure he didn't have to pay taxes on the full amount.

Yeah, I reduce the broker co-op commission by the rebate I provide the buyer and the transaction fee that my broker deducts.

So you make the buyer pay tax on their portion?

No, a rebate is not subject to personal income tax.  It can, however, reduce the cost basis of the home which might come into play when calculating capital gains at the time of resale.

 

[irvinehomeowner]

Does reducing the cost basis also reduce the property tax?

So USCT is like reverse Mello Roos?

 

[usctrojancpa]

As many have said, no reason for an agent to not give a rebate on new homes as it requires very little work. It also provides good will for future business.  USCT kicked back a significant amount of the rebate on my new home  (he's responsible for paying taxes on the full amount) and while he may not have made "that much," his gesture led to another opportunity with me to list my old house where he made a killing -with very little work also since this is Irvine afterall

...Then he became the King of WBE and and lived happily ever after (after my listing closed, he was contacted by several sellers in the neighborhood and closed on all). #desperate #USCTforPresident2016

I'm pretty sure he didn't have to pay taxes on the full amount.

Yeah, I reduce the broker co-op commission by the rebate I provide the buyer and the transaction fee that my broker deducts.

So you make the buyer pay tax on their portion?

Test, to the buyer the rebate is a reduction of cost basis in the home.  The IRS challenged Redfin's rebates saying that Redfin needed to 1099 the buyers.  Redfin (and more importantly, the tax court judge agreed) said it's a reduction of cost basis in the home for the buyer as it's a return of cost since the buyer did not do any work for the agent to "earn" income. 

Here's an example of how it works...if the home with was $500k + $5k for closing costs and I offer a $10k rebate the buyer's basis in the home is $495k ($500k + $5k - $10k).  So that would mean that the buyer would have a higher potential gain on sale of $10k from the rebate, but then there's that $250k/$500k gain exemption out there so buyers may end up not paying tax on the rebate. 

 

[usctrojancpa]

Does reducing the cost basis also reduce the property tax?

So USCT is like reverse Mello Roos?

Well there's the income tax basis in the home and then there's the property tax basis in the home.  haha

 

[usctrojancpa]

Give the full rebate back to the buyer, and then have the buyer cut you a check on the untaxed amount as a gift! 

Well considering that the IRS may have me prove out my rebates and looking at my bank statements showing the checks clearing that's not a risk that I'd take.  There's taking aggressive tax positions on grey area and then there is straight up tax evasion.  Plus, it'll be a huge red flag for the IRS if they see me rebating 100% of my commission to non family members.

 

[zubs]

Give the full rebate back to the buyer, and then have the buyer cut you a check on the untaxed amount as a gift! 

Well considering that the IRS may have me prove out my rebates and looking at my bank statements showing the checks clearing that's not a risk that I'd take.  There's taking aggressive tax positions on grey area and then there is straight up tax evasion.  Plus, it'll be a huge red flag for the IRS if they see me rebating 100% of my commission to non family members.

But would it be legal?  The annual exclusion is $14,000 for gift giving.  So I can give you $14,000 and not have to pay a gift tax every year.  Isn't this just considered a "loop hole"....much like the tax loop holes that make companies move their HQ to Ireland?

 

[Newbie13]

How about just use Redfin to buy?

 

[qwerty]

Give the full rebate back to the buyer, and then have the buyer cut you a check on the untaxed amount as a gift! 

Well considering that the IRS may have me prove out my rebates and looking at my bank statements showing the checks clearing that's not a risk that I'd take.  There's taking aggressive tax positions on grey area and then there is straight up tax evasion.  Plus, it'll be a huge red flag for the IRS if they see me rebating 100% of my commission to non family members.

But would it be legal?  The annual exclusion is $14,000 for gift giving.  So I can give you $14,000 and not have to pay a gift tax every year.  Isn't this just considered a "loop hole"....much like the tax loop holes that make companies move their HQ to Ireland?

The IRS will follow the fact pattern, more importantly the money. The facts clearly show the intent to circumvent paying taxes. Good luck.

 

[Cornflakes]

If not 1099, then what kind of paperwork takes place that reduces buyer's basis? I doubt it would be honor system with IRS.

 

[lnc]

Give the full rebate back to the buyer, and then have the buyer cut you a check on the untaxed amount as a gift! 

That's an interesting idea.  But instead of check, just do it FCB style, pay the agent's commission with a suitcase full of cash. 

 

[zubs]

Of course the intent is to circumvent paying taxes.  That's why it's a $14,000 loophole.  Is it legal?

 

[lnc]

Give the full rebate back to the buyer, and then have the buyer cut you a check on the untaxed amount as a gift! 

Well considering that the IRS may have me prove out my rebates and looking at my bank statements showing the checks clearing that's not a risk that I'd take.  There's taking aggressive tax positions on grey area and then there is straight up tax evasion.  Plus, it'll be a huge red flag for the IRS if they see me rebating 100% of my commission to non family members.

But would it be legal?  The annual exclusion is $14,000 for gift giving.  So I can give you $14,000 and not have to pay a gift tax every year.  Isn't this just considered a "loop hole"....much like the tax loop holes that make companies move their HQ to Ireland?

The IRS will follow the fact pattern, more importantly the money. The facts clearly show the intent to circumvent paying taxes. Good luck.

Ok USCT, how about this?  On my next purchase, rebate full commission to me at closing (So I'll have lower purchase price and result in lower property tax basis) and I'll deposit your commission at certain Porsche dealership for your GT3RS fund.

 

[zubs]

Why even hide it by using a suitcase full of cash...Just do it out in the open and tell everyone you're doing it....if it's a legal loophole then it's fine.  ..I'm guessing it falls in a grey area and the IRS can sue you for it...and why bother going to court vs. the IRS for a few thousand dollars.  But I still like discussing ideas.

 

[WTTCHMN]

Give the full rebate back to the buyer, and then have the buyer cut you a check on the untaxed amount as a gift! 

Well considering that the IRS may have me prove out my rebates and looking at my bank statements showing the checks clearing that's not a risk that I'd take.  There's taking aggressive tax positions on grey area and then there is straight up tax evasion.  Plus, it'll be a huge red flag for the IRS if they see me rebating 100% of my commission to non family members.

But would it be legal?  The annual exclusion is $14,000 for gift giving.  So I can give you $14,000 and not have to pay a gift tax every year.  Isn't this just considered a "loop hole"....much like the tax loop holes that make companies move their HQ to Ireland?

The IRS will follow the fact pattern, more importantly the money. The facts clearly show the intent to circumvent paying taxes. Good luck.

Ok USCT, how about this?  On my next purchase, rebate full commission to me at closing (So I'll have lower purchase price and result in lower property tax basis) and I'll deposit your commission at certain Porsche dealership for your GT3RS fund.

Nah, he doesn't buy new.  Too much depreciation.

 

[WTTCHMN]

If not 1099, then what kind of paperwork takes place that reduces buyer's basis? I doubt it would be honor system with IRS.

You could list it as a credit on lines 204-209 on the HUD-1.

 

[test]

As many have said, no reason for an agent to not give a rebate on new homes as it requires very little work. It also provides good will for future business.  USCT kicked back a significant amount of the rebate on my new home  (he's responsible for paying taxes on the full amount) and while he may not have made "that much," his gesture led to another opportunity with me to list my old house where he made a killing -with very little work also since this is Irvine afterall

...Then he became the King of WBE and and lived happily ever after (after my listing closed, he was contacted by several sellers in the neighborhood and closed on all). #desperate #USCTforPresident2016

I'm pretty sure he didn't have to pay taxes on the full amount.

Yeah, I reduce the broker co-op commission by the rebate I provide the buyer and the transaction fee that my broker deducts.

So you make the buyer pay tax on their portion?

Test, to the buyer the rebate is a reduction of cost basis in the home.  The IRS challenged Redfin's rebates saying that Redfin needed to 1099 the buyers.  Redfin (and more importantly, the tax court judge agreed) said it's a reduction of cost basis in the home for the buyer as it's a return of cost since the buyer did not do any work for the agent to "earn" income. 

Here's an example of how it works...if the home with was $500k + $5k for closing costs and I offer a $10k rebate the buyer's basis in the home is $495k ($500k + $5k - $10k).  So that would mean that the buyer would have a higher potential gain on sale of $10k from the rebate, but then there's that $250k/$500k gain exemption out there so buyers may end up not paying tax on the rebate. 

OK so you put it on the HUD1.  Some people rebate after closing which is altogether different.

 

[usctrojancpa]

As many have said, no reason for an agent to not give a rebate on new homes as it requires very little work. It also provides good will for future business.  USCT kicked back a significant amount of the rebate on my new home  (he's responsible for paying taxes on the full amount) and while he may not have made "that much," his gesture led to another opportunity with me to list my old house where he made a killing -with very little work also since this is Irvine afterall

...Then he became the King of WBE and and lived happily ever after (after my listing closed, he was contacted by several sellers in the neighborhood and closed on all). #desperate #USCTforPresident2016

I'm pretty sure he didn't have to pay taxes on the full amount.

Yeah, I reduce the broker co-op commission by the rebate I provide the buyer and the transaction fee that my broker deducts.

So you make the buyer pay tax on their portion?

Test, to the buyer the rebate is a reduction of cost basis in the home.  The IRS challenged Redfin's rebates saying that Redfin needed to 1099 the buyers.  Redfin (and more importantly, the tax court judge agreed) said it's a reduction of cost basis in the home for the buyer as it's a return of cost since the buyer did not do any work for the agent to "earn" income. 

Here's an example of how it works...if the home with was $500k + $5k for closing costs and I offer a $10k rebate the buyer's basis in the home is $495k ($500k + $5k - $10k).  So that would mean that the buyer would have a higher potential gain on sale of $10k from the rebate, but then there's that $250k/$500k gain exemption out there so buyers may end up not paying tax on the rebate. 

OK so you put it on the HUD1.  Some people rebate after closing which is altogether different.

It is different because if the rebate is done through escrow then my broker gets the commission net of the rebate and then deducts his fee from that (so I would never get 1099ed the full amount of the rebate) so it's on a net basis.  If I do the rebate outside of escrow then I record the gross commission on Line 1 of my Schedule C and then record the rebate on Line 2 so it's the gross basis.