CPA question - Posted by ron

Posted by ron on March 15, 2006 at 23:10:00:

As I researched this term on 20 different sites
what I saw that they had in common is that you would be interferring in a way with the borrows real ability to qualify, to the point where your commission rebate is what helps them to qualify for the loan whereas without it they wouldn’t , this comes up a lot with FHA loans and inducement where the seller pays the down payment.

I guess the way I meant to phrase the question is that the borrow can easily qualify for the loan on their own merits, and the rebate is something extra, a thank you, it came out of the agents commissions, wouldn’t that really mean that the borrow is now stronger with more money in their pocket?

I just noticed in all of the articles they all talked about down payment assistance, I meant to give an example where a buyer can clearly qualify on their own where the realtor gives the rebate or not.

CPA question - Posted by ron

Posted by ron on March 15, 2006 at 14:25:00:

Tax Scenario
I?d prefer an accountant or CPA answer this question
But I am open to an experienced qualified investor answering it

parties involved

Buyer
Seller
Real Estate Agent

Buyers buys the property for $201,000 from the seller
Seller keeps $190,000 for the property and pays $11,000 to agent

Agent gets $11,000 and pays $1000 rebate to the buyer

The seller only made $190k correct?
If another seller got $202k contract and had to pay $12k to an agent

The seller in both scenarios only made and pay taxes based on $190k they get to pay off any existing financing and left over is their gain.

Agent only kept $10,000 commission in both scenarios
$12,000 with $2000 rebate and another agent $11,000 commission $1000 rebate

Buyer bought the property for $202,000 in the second scenario and received $2000 check as a rebate.

Who claims what for taxes as income? As write-offs? Who 1099?s who?

Re: CPA question - Posted by ed copp (OH)

Posted by ed copp (OH) on March 15, 2006 at 21:37:55:

Too little information offered.

It is illegal in most, if not all states for an agent to give a rebate to the buyer. In some states it may be accepable for the Broker to give a rebate if that fact was clearly stated in the purchase contract. That would be likely to mess up financing. It is called an inducement to purchase, and if done by the Broker, not the agent it may be legal but has a lot of “Red Flag” qualities.

Now if the agent should pay a rebate “under the table” then that would be illegal, and not deductable for her, but taxed to the buyer.

It is a far better idea to have the seller make concessions to the buyer, in writing and completely above board. A decorating allowance is a pretty good term, everybody understands and if it is spelled out in the contract then there are no problems.

Re: CPA question - Posted by ron

Posted by ron on March 15, 2006 at 22:10:42:

in my state a broker can pay proceeds to a buyer
I meant broker, real estate broker.

we have found decorating allowance not accepted by lenders generally speaking

can you show me literature on inducement to purchase

it’s in our state law that agents can give money to a party of the transaction

Thanks for your feedback