Hi

I am planning to buy a house through a discount Real Estate broker. He will refund half the commission he gets ( from the seller ) to me. He tells me that he will refund this after the close of Escrow and will issue a 1099. My question is what are the tax implications of this?
I will be basing my purchase price of the house based on the money I will be getting back from the Real Estate broker. Since I am paying the down payment with after tax dollars, and am getting a part of it back from the broker, it can be viewed as either I am putting less money from my pocket for the house or the purchase price of the house is less by the amount of commission paid back to me. I would hate to pay tax on the money I get back from the broker ( because it is not really an income ). What is the best way to handle this? Is there a way for me to not pay taxes on the money that the broker will pay me?

Thanks in advance for your help.
Goody

It will reduce the cost (purchase price) of the house you purchases. There is no tax payable on that.

I disagree with MukatA's answer.

The agent is essentially giving you a kickback in exchange for your business. I will NOT discuss the legality of such an arrangement, but, for sure, the IRS WILL consider that money to be taxable income.

Make sure he does NOT put the money in Block #7 of the Form 1099-MISC, because then you will have to file a Schedule C and SE and pay self-employment taxes on the income.

Have him enter the income in the "Other income" block, and then report the income on Line #21 of Form 1040.

I'd ask to get a credit at closing. Unless you are already getting a credit from the seller that shouldn't be a problem

DBM has a good point. If you get a credit at the closing, then NO Form 1099 is required and no tax is incurred.

Hi All
Thank you for your suggestions. I took them up with my agent. He said that some Sales Agent would be unwilling to reduce the price for fear of their reputation that they are selling low. The Escrow will not let the agent put much more money than the closing costs. So the only option seems to be 1099. I even asked if my agent can pay for repairs and upgrades. And he said even if they do, they will have to give me the 1099 for the whole money. So does not look like too many options.

Okay, then make sure he does NOT put the money in Block #7 of the Form 1099. If he does, you will owe BOTH the income taxes PLUS a 15.2% self-employment tax.