Are Buyer Broker Commission Rebates Taxable in NYC?

Buyer Broker Commission Rebates in NYC are not viewed as income, but rather as a concession on price according to the IRS.

What is a NYC buyer broker commission rebate?

A buyer broker commission rebate is a financial incentive paid to a buyer from the buyer’s broker after closing. A buyer’s broker may offer a portion of the buy side commission to the buyer as an incentive for the buyer to work with said buyer’s broker.

Request a Buyer Broker Commission Rebate

Share the commission with your buyer's agent and receive professional guidance throughout the purchase process

So buyer broker commission rebates are not taxable?

As a general rule of thumb, buyer broker commission rebates in NYC are not taxable. The IRS actually released a private letter ruling in 2007 in response to a request for clarification on the taxability of rebates from a major brokerage.

The IRS ruled that the payment of a buyer broker commission rebate at closing either in cash or as a closing cost credit did not count towards the purchaser’s gross income, but would instead lower the cost basis of the purchaser’s new home.

Read the full IRS ruling for yourself: https://www.irs.gov/pub/irs-wd/0721013.pdf

The IRS referenced two prior rulings to back up its decision:

Situation 2 of Rev. Rul. 2006-27, 2006-21 I.R.B. 915

This situation involves a non-profit corporation which engaged in the practice of providing down payment assistance to low-income families and individuals towards the purchase of homes.

Rev. Rul. 76-96, 1976-1 C.B. 23, as modified by Rev. Rul. 2005-28, 2005-1 C.B. 997

This situation involves an automobile manufacturer that pays rebates to its customers who purchased or leased new automobiles.

In both of the above rulings, the IRS determined that the down payment assistance and rebates on automobile purchases are not included in the buyer’s gross income but rather are considered an adjustment to the purchase price of the home or automobile.

Are Buyer Broker Commission Rebates Taxable in NYC?

Should my buyer’s broker mail me a 1099 form?

No, you do not need a 1099 as the IRS has ruled that the buyer’s broker does not have a 1099 reporting obligation because the rebate represents “a payment or credit at closing represents an adjustment to the purchase price of the home and generally is not included in a purchaser’s gross income.”

It is important to understand that IRS rules are only technically applicable to the petitioner, and that entities can only petition for themselves and not on behalf of others. However, the language of the IRS ruling does appear to be clear on its position that any interested party contribution at closing represents an “adjustment to the purchase price of the home and generally is not included in a purchaser’s gross income.”

Request a Buyer Broker Commission Rebate

Share the commission with your buyer's agent and receive professional guidance throughout the purchase process

What happens to my property’s cost basis if I receive a NYC buyer commission rebate?

The private IRS ruling suggests that NYC buyer broker commission rebates are not taxable, but rather reflect an adjustment of the buyer’s purchase price.

For example, if you purchase a NYC condo in Midtown for $2 million and received a 1% commission rebate worth $20,000 at closing, the cost basis of your purchase would be adjusted down. Therefore, in the eyes of the IRS, your cost basis would be $1,980,000 instead of $2,000,000.

This phenomenon is the reverse of what happens when you improve your home through renovations. If you had spent $20,000 upgrading your home, that $20,000 would increase your cost basis.

Will listing agents refuse to work with discount brokers openly providing rebates?

Unfortunately, you will have a tough time securing the cooperation of listing brokers if you work with a discount broker who openly advertises rebates. It won’t matter how big of a rebate you get if your buyer’s broker can’t get a deal done!

It is true that any form of discrimination against brokers engaged in rebating is in violation of the state’s anti-trust provisions. In an open letter to the New York real estate community, Attorney General Schneiderman made it clear that his office “will investigate any allegations of discrimination against brokers engaged in rebating.”

However, it’s pretty certain that traditional real estate brokers in NYC are not very happy about the prospect of reduced commissions and lower earnings. There will naturally be resentment by traditional listing agents towards brokers who openly advertise commission rebates. This is viewed as not playing fair and biting the hand that feeds them. Remember, it is the listing agent who has done the hard work of convincing the seller to pay 6% in commission. The listing agent won’t be happy that a discount broker “cheated” in order to swoop in and take half the commission.

The harsh reality is that resentment towards and refusal to cooperate with discount brokers who openly offer to work for less is very hard to prove. Therefore, as a buyer it’s very important to work with a traditional broker with their brand image intact who will discreetly offer you a rebate. Getting a private, friends and family discount through a traditional broker with good relations with the wider brokerage community is the only way to get a rebate without hurting your chances of doing a deal in the first place.

We’ve secured buyer broker commission rebates in NYC with the finest, most experienced local real estate brokers. Contact us today to be introduced to a veteran buyer’s agent in your area who has already agreed to provide you with a rebate discreetly after closing.

Request a Buyer Broker Commission Rebate

Share the commission with your buyer's agent and receive professional guidance throughout the purchase process

Disclosure: nycbuyercommissionrebate.com and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.