Builder's Incentive Money

[FTHB]

First of all, thanks! 

I heard KB home is offering $15K builder's incentive money if I bring an agent in.  Wonder how exactly this works. 

Are they gonna cut a check of $15k to the agent?  This way, I will find an agent to split the money.  But is this incentive "kickback" taxable for me? 

Or, do I have to spend the incentive money at their design centers for their overpriced upgrades?  If this is the case, then how should the agent I bring in be paid?

 

[akim997]

Sounds like they are offering a broker co-op which can be a flat fee or percentage.  I believe you need to have your broker sign-in or register in order to be eligible for the co-op.  It goes to the broker.  If you have a broker who's a friend, he can give you some money back.  Taxable to him/her. 

 

[jyeh74]

KB Homes are pooryl made....

 

[homer_simpson]

KB Homes are pooryl made....

I dont think FTHB was asking about the build quality.  ???

 

[FTHB]

Sounds like they are offering a broker co-op which can be a flat fee or percentage.  I believe you need to have your broker sign-in or register in order to be eligible for the co-op.  It goes to the broker.  If you have a broker who's a friend, he can give you some money back.  Taxable to him/her.

Thanks!  Is this broker co-op for new homes different from the broker commission for resale homes tax per se?  I know for resales, the broker commission "kickback" is not taxable, i.e.  the broker will not issue 1099.  How about the co-op?  Is the "kickback" part taxable to me?

 

[irvinehomeowner]

Thanks!  Is this broker co-op for new homes different from the broker commission for resale homes tax per se?  I know for resales, the broker commission "kickback" is not taxable, i.e.  the broker will not issue 1099.  How about the co-op?  Is the "kickback" part taxable to me?

I think that depends on the broker.

The one time we got a "rebate" from our previous realtor... they 1099'ed us.

 

[FTHB]

KB Homes are pooryl made....

Thanks for the input!  I heard bad things about them too.  But my agent says "If the builder is allowed to build in Irvine, it should be a good one.  Besides, they have 10 yr warranty".  I am debating myself too.  It is really hard decision, given their attractive prices.

 

[FTHB]

Thanks!  Is this broker co-op for new homes different from the broker commission for resale homes tax per se?  I know for resales, the broker commission "kickback" is not taxable, i.e.  the broker will not issue 1099.  How about the co-op?  Is the "kickback" part taxable to me?

I think that depends on the broker.

The one time we got a "rebate" from our previous realtor... they 1099'ed us.

http://www.redfin.com/about/press/releases/pr-irs-ruling

 

[usctrojancpa]

Sounds like they are offering a broker co-op which can be a flat fee or percentage.  I believe you need to have your broker sign-in or register in order to be eligible for the co-op.  It goes to the broker.  If you have a broker who's a friend, he can give you some money back.  Taxable to him/her.

Thanks!  Is this broker co-op for new homes different from the broker commission for resale homes tax per se?  I know for resales, the broker commission "kickback" is not taxable, i.e.  the broker will not issue 1099.  How about the co-op?  Is the "kickback" part taxable to me?

I have done this commission sharing with a few buyers that have purchased new homes.  The way I do is via an Addendum to the purchase agreement which I and my buyers sign (sometimes escrow requires my broker to sign it).  The "kickback" (aka commission contribution) is a credit to the buyer's escrow for a certain amount of money from the broker co-op (buyer's agent commission).  Then I send that Addendum over to escrow and the lender.  Because the transfer happens via escrow, neither my buyers nor I pay tax on that "kickback" because we never got the money.  What the "kickback" will do is low the taxable cost basis of the home.  For example, if the home costs $500k and closing costs are $10k with a $5k "kickback" the taxable cost basis in the home would $500k + $10k - $5k = $505k instead of $510k.  If you have any other specific questions, feel free and PM me.

 

[usctrojancpa]

Thanks!  Is this broker co-op for new homes different from the broker commission for resale homes tax per se?  I know for resales, the broker commission "kickback" is not taxable, i.e.  the broker will not issue 1099.  How about the co-op?  Is the "kickback" part taxable to me?

I think that depends on the broker.

The one time we got a "rebate" from our previous realtor... they 1099'ed us.

That's because you got the money outside of escrow.  Since no credit was given from the buyer's agent into escrow, the entire commission went to the broker/agent.  The broker/agent would be responsible for the tax on all the commission since they got the entire commission.  The only way to relieve their tax obligation is to issue a 1099 to the buyer for the commission contribution.  Which is a lose-lose in my opinion.  Doing the commission via escrow is the best way to do it because it's not taxable to the buyers and the agent.  I'm glad that you aren't working with that "previous" realtor. 

 

[qwerty]

Thanks!  Is this broker co-op for new homes different from the broker commission for resale homes tax per se?  I know for resales, the broker commission "kickback" is not taxable, i.e.  the broker will not issue 1099.  How about the co-op?  Is the "kickback" part taxable to me?

I think that depends on the broker.

The one time we got a "rebate" from our previous realtor... they 1099'ed us.

That's because you got the money outside of escrow.  Since no credit was given from the buyer's agent into escrow, the entire commission went to the broker/agent.  The broker/agent would be responsible for the tax on all the commission since they got the entire commission.  The only way to relieve their tax obligation is to issue a 1099 to the buyer for the commission contribution.  Which is a lose-lose in my opinion.  Doing the commission via escrow is the best way to do it because it's not taxable to the buyers and the agent.  I'm glad that you aren't working with that "previous" realtor. 

Ziprealty gives the commission rebate to the buyer outside of escrow and does not issue a 1099, i believe redfin does the same thing.  Couldnt the brokerage/realtor just deduct the kickback as a business expense without issuing a 1099? Which is essentially what ziprealty is doing?

 

[FTHB]

"I have done this commission sharing with a few buyers that have purchased new homes.  The way I do is via an Addendum to the purchase agreement which I and my buyers sign (sometimes escrow requires my broker to sign it).  The "kickback" (aka commission contribution) is a credit to the buyer's escrow for a certain amount of money from the broker co-op (buyer's agent commission).  Then I send that Addendum over to escrow and the lender.  Because the transfer happens via escrow, neither my buyers nor I pay tax on that "kickback" because we never got the money.  What the "kickback" will do is low the taxable cost basis of the home.  For example, if the home costs $500k and closing costs are $10k with a $5k "kickback" the taxable cost basis in the home would $500k + $10k - $5k = $505k instead of $510k.  If you have any other specific questions, feel free and PM me."

Thanks for the explanation!  One more question for you: What if the "kickback" exceeds the closing cost?  Should the agent/broker issue a check for the excess?  Is the exceeded portion taxable to me? 

 

[usctrojancpa]

Thanks!  Is this broker co-op for new homes different from the broker commission for resale homes tax per se?  I know for resales, the broker commission "kickback" is not taxable, i.e.  the broker will not issue 1099.  How about the co-op?  Is the "kickback" part taxable to me?

I think that depends on the broker.

The one time we got a "rebate" from our previous realtor... they 1099'ed us.

That's because you got the money outside of escrow.  Since no credit was given from the buyer's agent into escrow, the entire commission went to the broker/agent.  The broker/agent would be responsible for the tax on all the commission since they got the entire commission.  The only way to relieve their tax obligation is to issue a 1099 to the buyer for the commission contribution.  Which is a lose-lose in my opinion.  Doing the commission via escrow is the best way to do it because it's not taxable to the buyers and the agent.  I'm glad that you aren't working with that "previous" realtor. 

Ziprealty gives the commission rebate to the buyer outside of escrow and does not issue a 1099, i believe redfin does the same thing.  Couldnt the brokerage/realtor just deduct the kickback as a business expense without issuing a 1099? Which is essentially what ziprealty is doing?

Yeah, it can be done like that but techincally you are bending the rules (same concept as deducting Mello Roos).  Currently the IRS does not require business owners to file 1099 for all vendors and customers, but that is about to change in the next few years with new bill that recently got passed which requires business owners send all customers and vendors (whoever they send money to) over a certain amount (few hundred I think).  The cleanest way to do the rebate is through escrow where it isn't taxable to anyone.  Here's the best part though...buyers who use the commission rebate to buy their interest rate down still get the buy down deduction even though it was done with the buyer's agent commission rebate.  Talk about a win-win-win.

 

[usctrojancpa]

"I have done this commission sharing with a few buyers that have purchased new homes.  The way I do is via an Addendum to the purchase agreement which I and my buyers sign (sometimes escrow requires my broker to sign it).  The "kickback" (aka commission contribution) is a credit to the buyer's escrow for a certain amount of money from the broker co-op (buyer's agent commission).  Then I send that Addendum over to escrow and the lender.  Because the transfer happens via escrow, neither my buyers nor I pay tax on that "kickback" because we never got the money.  What the "kickback" will do is low the taxable cost basis of the home.  For example, if the home costs $500k and closing costs are $10k with a $5k "kickback" the taxable cost basis in the home would $500k + $10k - $5k = $505k instead of $510k.  If you have any other specific questions, feel free and PM me."

Thanks for the explanation!  One more question for you: What if the "kickback" exceeds the closing cost?  Should the agent/broker issue a check for the excess?  Is the exceeded portion taxable to me? 

If the "kickback" exceeds the total closing costs then the exceed gets sent back to the buyer's agent/broker.  You do not get the excess as the limitation on the "kickback" being used only for closing costs is a lender requirement.  If you didn't have a loan and paid cash for the home, then the excess does not get rebated back to the agent/broker and will just reduce the cost basis of your home.  Thus, it would not be taxable to you whether you got a loan or were paying cash for the home purchase.

 

[irvinehomeowner]

USC is correct... we got ours outside of escrow.

If this is similar to when you do no cost/no fee refis where the broker pays for the fees via a credit, I could see how you could use escrow to handle the rebate and avoid the 1099.

But... you should ask the builder how they will handle it (I'm sounding like a broken record here).

 

[usctrojancpa]

USC is correct... we got ours outside of escrow.

If this is similar to when you do no cost/no fee refis where the broker pays for the fees via a credit, I could see how you could use escrow to handle the rebate and avoid the 1099.

But... you should ask the builder how they will handle it (I'm sounding like a broken record here).

USC is correct... we got ours outside of escrow.

If this is similar to when you do no cost/no fee refis where the broker pays for the fees via a credit, I could see how you could use escrow to handle the rebate and avoid the 1099.

But... you should ask the builder how they will handle it (I'm sounding like a broken record here).

The IRS will basically follow where the buck stops (literally speaking).  If it stops in escrow and the buyer and agent don't get it, then they can not be taxed on it.