Check out some similar questions!

wuzixin · Aug 24, 2009, 05:17 PM

I bought a house and my agent will give me some $ as a rebate. The money is taxable, and she will file a 1099 form. My income tax bucket is high, and my parents just came here (B-2 visa). Since they don't have any income in the U.S. I am thinking of asking my agent to give them the money.

My question: are my parents allowed to receive payment in the U.S. If yes, what form my agent should file, 1099-misc or 1042-s ? Then do they need to file tax return next year? And apply for a ITIN number as well?

Thanks so much!

MukatA · Aug 25, 2009, 01:06 AM

You bought a house and agent is giving you dollars as rebate. The rebate amount is not taxable, it will only reduce your cost basis of the house.

AtlantaTaxExpert · Aug 25, 2009, 08:28 AM

I disagree with MukatA's contention that the rebate is NOT taxable. The rebate represents a portion of the real estate agent's commission, which clearly IS taxable to the real estate agent. The sharing of that commission as a condition of sale makes it a tax deduction to the agent only if it is taxable to the recipient (you).

As for whether you can transfer the money to your parents, such a transfer would NOT legally relieve you of the tax liability. Since the transfer is a condition of the sale, the tax liability remains with you (the purchaser of the house) regardless of who eventually gets the money.

The IRS would perceive the transfer as a post-tax gift from you to your parents.

wuzixin · Aug 25, 2009, 10:51 AM

The rebate is taxable, as my agent told me so and she already did this for her previous clients.

For the concern from AtlantaTaxExpert, I should have said it more clearly. If I receive the money, my agent will file a 1099 form to me, and the rebate is my "other income", and she won't mention anything about the house purchase. Otherwise, she will send the money to my parents directly, and there won't be anything about me (or the house) on the money. Will this make any difference?

AtlantaTaxExpert · Aug 25, 2009, 11:33 AM

Yes, it makes a difference.

What you are proposing is tax fraud, plain and simple. The fact that there is no mention of the house purchase is irrelevant.

MukatA · Aug 26, 2009, 04:57 AM

My answer was based on my own logic. I am not sure I am right or wrong. Agent is not giving any money from his/her pocket. The agent may not even get the balance amount if the agent does not give the rebate.

I did Google Search;
Webdigs Blog Blog Archive IRS Rules Commission Rebates Not Taxable

Then Cash Back Rebate for Buying Real Estate in Colorado Springs and Surrounding Areas
"Is the buyer's cash back rebate taxable income?
No, the rebate is simply a reduction on your taxable basis in the property you buy. There's no Form-1099 because the rebate is not income. It's the same as a rebate when you buy a car, or a cell phone, or a rebate you receive back on your credit card purchases."

And http://www.rehava.com/how-rebates-wo...taxable-income

AtlantaTaxExpert · Aug 26, 2009, 11:36 AM

MukatA:

Based on your research, I have to concede that, if the money received is part of a formal rebate program set up by the realter and NOT a private arrangement between the OP and the real estate agent, then the rebate is probably NOT taxable.

wuzixin · Aug 26, 2009, 12:17 PM

This is interesting.
What is a "formal rebate"?
The sale is already closed, and I paid all closing costs.
Will it be a "formal rebate" if my agent can give me a rebate agreement, even if she cut me a check after closing?
If yes, do we have to report this to the lender because this is considered a reduction of the purchase price?

MukatA · Aug 26, 2009, 10:28 PM

What I feel, I may be wrong, it does not matter when you get the rebate, there is written agreement or not; if the rebate is in consideration with the property you purchased, it is return of capital-- not an income.
To be safe attach a statement with your tax return that you got 1099 for $xxx, which you are treating as return of home capital, and not as income. Let IRS figure it out.

wuzixin · Aug 27, 2009, 11:21 AM

Thanks both of you.
If I do like what MukatA said, and finally IRS determines it's taxable income, will this considered as tax fraud or just that I will owe IRS tax?

AtlantaTaxExpert · Aug 27, 2009, 12:24 PM

No, you are acting in good faith when you attach the statement to the return, i.e. there is NO criminal intent.

If the IRS rejects your submission that it is a return of capital, they will only assess the extra tax and interest and give you a chance to appeal or pay the taxes.