Sale of residence-1099misc-NEC

[Bird Legs]

Client signed an agreement with a realty company to buy a new residence. This was in 2004.
The agreement stated that client would receive a 1% rebate when the house was purchased. Closing on new residence was in the latter part of 2004. Client received a check for approximately $2,000. & The realty company that located the house for my client then issued a 1099-Misc. NEC.
This rebate does not sound like income to me, instead, a reduction of the purchase price of home. Also, recognizing that this was not S E Income.

Am asking for your professional help in this matter. Do not want client to pay tax on the
$2,000. that I feel is really not income.
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[Armando Beaujolais]

There's some missing information here.

I'd call the closing company and ask them what the 1099 is for.

At face value it looks like a kickback. Kickbacks are taxable. In the same category as bribes.

The company's reporting it as nonemployee compensation? It sounds like they're treating the payment as a commission.

It would seem to be the same thing as a manufacturer rebate when you buy a car. But that's the manufacturer's incentive, and it's not reported on a 1099. In this case it's not a seller's rebate.

It sounds very strange to me. It sounds even more strange if you're getting vague answers that don't make sense.

I guess the first person I'd grill would be the client.

[Snaggletooth]

Stork - it's income!

Good to have you join us - the Legs of Texas are upon us!!

Any reduction of indebtedness on the part of a financial institution is Income, and usually
1099 of the abandonment type. If a party other than a financial institution is involved, the taxation may or may not be deferred, depending on numerous factors.

However, was the $2,000 ever part of the debt? If it was, the financial institution was correct in issuing a 1099. If someone can figure out if the $2,000 was ever "borrowed money" they will have the answer. It seems to me that the "kickback" was juggled around similar to the other closing costs.

Any other comments? Regards, Ron Jordan

[S T]

Client signed an agreement with a realty company to buy a new residence. This was in 2004.
The agreement stated that client would receive a 1% rebate when the house was purchased. Closing on new residence was in the latter part of 2004. Client received a check for approximately $2,000. & The realty company that located the house for my client then issued a 1099-Misc. NEC.
This rebate does not sound like income to me, instead, a reduction of the purchase price of home. Also, recognizing that this was not S E Income.

Am asking for your professional help in this matter. Do not want client to pay tax on the
$2,000. that I feel is really not income.
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I think it is income.

Follow the chain. The Realty company (Realtor) receives their commission from the seller transaction, and as enticement for a buyer to make an offer on their listing and conclude a purchase the Realtor offers a 1% rebate if the buyer concludes the buying transaction.

Normally a buyer does not pay any realtor commissions on their side of the transaction. The realtor needs to issue a 1099 to the receivor of the rebate so the Realtor can deduct as an expense on their return. So the receivor (buyer) would have to claim as income not subject to SE tax. The buyer received an incentive for the purchase of the home.

We have similar transactions on Calif properties. On the escrow statement it will show a credit for closing costs that the Realtor gave, rather than the Realtor actually issuing a check for $$, or the purchase price will be reduced.

Since this was not handled through escrow, and the taxpayer received the $ rebate, I don't see how you can apply to a reduction of purchase price.

Sandy

[jainen]

Fraud

The reason it's fraud is that the bank thinks it's loaning 80K on a 100K property (to use unrealistic numbers as an example) with the borrower holding 20% equity. But neither the property value nor the equity is as high as it thinks. The broker knows this is illegal so makes the payment a separate transaction, similar to a referral fee. Best you can do at this point is call it Line 21 Other Income not self-employment.

[Bird Legs]

Thanks

to all of you knowledgable people, Jainen, Sandy, Armando, Ron.
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