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    #1

    RE Broker Question

    Hello all,

    Questions regarding rebates (and payment to charity) to buyers from RE brokers. My research shows that rebates to buyers from brokers is not taxable to the buyer; it reduces the basis of the house purchased. And presume broker maybe deducting under "other expenses" category as cost of doing business; that amount paid to the buyer? If any has anyone thoughts on this?

    The other question is, a RE broker has asked me to comment/research if a transaction of sale has occurred (via purchase), where the buyer receives a rebate and the RE broker states that he will additionally give a percentage of the commission to his or her chosen charity, should there be any other reporting or concerns regarding this matter? Obviously, neither RE broker or buyer may deduct the contribution to the charity, but I am just wondering if I am missing anything.

    Thanks.

    RFK
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    #2
    My View

    Where I am from the seller pays the commission. You are saying the buyer is paying a commission. Regardless, if the broker cuts his 5% commission to 4% on a 100k sale, the broker has to report $4,000 of income. If the broker chooses to make a donation of $500 to a charity that would be a charitable contribution. Maybe if the sale was contingent upon his making the contribution, you could report $4,000 as income and claim a $500 business expense. I don't think the IRS would buy this but maybe you can argue it.

    Comment

      #3
      Originally posted by Kram BergGold View Post
      Where I am from the seller pays the commission. You are saying the buyer is paying a commission. Regardless, if the broker cuts his 5% commission to 4% on a 100k sale, the broker has to report $4,000 of income.
      No, the post did not say the buyer is paying a commission. The buyer is paying for the property, of course, and maybe the agent offered the rebate as an incentive to complete the deal. I would report it on line 2 of Schedule C.

      I agree on charitable contribution, it would be gross income on Schedule C and deductible on Schedule A. Has nothing to do with buyer, from a tax point of view.
      "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

      Comment

        #4
        Charitable deduction

        Looks then like the broker can take the charitable deduction on schedule A, even though he would have done so in the interest of buyer. It is all for the buyer - rebate money going to buyer, along with a charitable contribution of buyer's choice. But the broker gets to deduct charity contribution.

        Thanks...Robert

        Comment

          #5
          Please note that a rebate is illegal for real estate agents/brokers, if that is actually what it is, unless the person/firm to whom it is being paid is also a licensed real estate broker. The agent/broker may negotiate any amount of commission he wishes; it does not have to be 6%. It can be 10%, 5%, or 4%, etc. But he cannot charge 6% and then refund 1% to a non-licensed person. And an agent cannot generally reduce the standard commission charged by the brokerage firm, unless the broker agrees to it and signs off on it. All agents must affiliate with a brokerage firm licensed to do business in the pertinent state. I doubt if he could or would be allowed to put anything in writing about any charitable donation. So the seller could not hold him to it as a condition of sale. If the agent did make such a contribution, it would be deductible on Sche A for the agent.

          Comment

            #6
            Not illegal in most places

            Originally posted by Burke View Post
            Please note that a rebate is illegal for real estate agents/brokers, if that is actually what it is,
            Only ten states, none of the most populous ones, have passed laws banning such transactions. So it is very likely that the scenario in the OP is perfectly legal.

            Banning rebates only helps prevent price competition by brokers, efforts are being made to get rid of the bans that do exist.

            Page not found
            https://www.justice.gov/atr/rebates-make-buying-home-less-expensive
            ,
            "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

            Comment

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