Real Estate Brokerage Commissions

As the residential real estate market continues to soften, it may become more common for brokers to rebate or reduce brokerage commissions, in order to benefit buyers to encourage sales. A recent ruling addresses the tax consequences of such rebates. A buyer’s agent paid the buying customer a portion of the commission after closing. The IRS held that the buyer does not have to recognize this payment as income. Instead, the payment should be treated as a downward adjustment of the purchase price. Also, the broker does not have to issue a Form 1099 reporting the payment to the buyer to the IRS. The rationale is that since the amount is not income, it did not have to be reported. PLR 200721013.