If you’ve been considering hiring a real estate agent who will offer you a home buyer’s rebate, you might be wondering about the tax ramifications. Will the rebate be taxed? If so, is it even worth it?
The easy answer is that home buyer’s rebates are NOT taxable. While normally any extra income you receive over $600 is required to be reported on FORM 1099-MISC, the rebate amount is NOT taxed.
Why Your Home Buyer's Rebate is not Taxed
The IRS considers the rebate amount an adjustment in the price of the house; it’s not treated as a cash lump. If you purchase a home for $250,000 and you receive a $5,000 rebate, then the actual price of your home will be $245,000.
Buying a house does have distinct tax advantages, however. When you buy a house, you’ll have the benefit of being able to deduct various expenses, including mortgage interest. That typically amounts to a fairly large chunk, especially in the early years of your loan when you’re paying mostly interest. You’ll also be able to deduct any points associated with your loan. Points are fees you pay to get a lower interest rate. You’ll also be able to shave off the cost of your property taxes, and, in some cases, your private mortgage insurance.
You can even deduct mortgage interest on a second home. In addition, if you refinance and take out extra money that is used on home improvements, you can deduct the interest on that part of the loan, too. And if you had to move because of a new job that is more than 50 miles away from your prior home, you can deduct some of your moving expenses.
If you do choose to pursue a home buyer rebate, you can be assured they are legitimate (and legal in most states) and you’ll receive the same level of service you would receive from an agent who doesn’t offer rebates.
The U.S. Department of Justice has positive things to say about home buyer rebates: “The Antitrust Division has found no evidence that refunds and incentives harm consumers,” the agency states on its website. “On the contrary, they can dramatically lower the price that consumers pay for brokerage services.”
Typically real estate agents representing the buyer receive a three percent commission (with the seller’s agent also receiving three percent). A buyer’s broker can offer to give the buyer one or two percent of his commission; this is the rebate.
For a buyer who purchases a home costing $300,000, he could receive $3,000 in rebates at one percent and $6,000 at two percent. That’s a good chunk of money that is a great benefit if you’re a little short on cash up front and can put this toward the down payment.
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