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.
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