jd4iam asked:
I sold my home and bought a different home last year. My Realtor rebated several thousand dollars of his commission back to me on the purchase transaction.
My normal income is just a pension and my spouse and I both receive Social Security. My tax man says I do not normally have to file and haven’t for a couple years now.
I am being told that I have to file this year due to that Realtor rebate and that I will have to pay self employment tax on the rebate amount received.
Another tax man told me that it was not earned income (I didn’t do anything for it - it was just a way of the Realtor discounting his fees) and that I did not have to pay self employment tax.
What is the right answer?
Does it matter what kind of 1099 is issued?
Where do I go for reliable answers…….?
PLEASE HELP!!
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4 users responded in this post
I would say that it wouldn’t be taxable at all. When you purchase a house, all other costs associated with buying the house are added to the cost (basis) of the house.
This rebate would be a reduction in basis, not taxable income. If possible, include it on line 21 of the 1040 and then back it out again on line 21 with an explantion.
Rebates are just a reduction in the cost of the item purchased. They have no tax consequences on non-deductible purchases. It will lower your cost basis, but that’s it. No 1099 should be issued.
In my opinion, it is similar to a “return of capital” type transaction and is not taxable. You merely paid less for the service of the Realtor. However, if the Realtor issued you a 1099, IRS may contact you if it is not included on the return. It is absolutely not subject to self-employment tax if you did nothing to “earn” it and are not in the real estate business. Your Realtor should not have issued the 1099 in my view. If they did send one, it certainly should not be as Non-Employee Compensation, but as Other Income. Without viewing the primary documents and any written agreements you had with the Realtor, I cannot advise you on how to treat the income. If it were I, and it was merely a “rebate” of fees, I would file the 1040 and attach a statement regarding the 1099 but not include it in income.
See a good E.A. or C.P.A.
The person who told you that you had to pay self-employment taxes on this is wrong. The tax person who said it’s just a way of the Realtor discounting his fees and that you don’t have to pay self-employment tax on it is correct.
You got a 1099 on this? A 1099 -misc that shows a number as non-employee compensation does trigger self-employment tax, but if you got that, it’s not correct and you need to tell the realtor to get it corrected. Actually, since it was just a rebate of fees, I don’t know why they would have issued a 1099 of any type - they shouldn’t have.
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