Realtor commission rebate as cashback - tax implications for first-time homebuyer

The loan officer is partially correct, but there's more to understand here. Let me break this down: When your mother receives the commission as a realtor, that is indeed considered income to her and would be taxable. That's her professional income for services rendered, even if she intends to gift it back to you. However, you're also correct about commission rebates potentially not being taxable to buyers. The IRS has taken the position that a true rebate (reduction in price) isn't taxable income to the buyer. But that applies when the rebate comes directly from the realtor to you, not when it's income to the realtor first and then gifted. There might be a better way to structure this. Your mother could potentially agree upfront to a reduced commission with the stipulation that the savings go directly toward your closing costs. This way it never becomes income to her. I'd recommend consulting with a real estate attorney who specializes in this area to structure it properly.

After dealing with a similar situation buying my first house, I found this amazing service called taxr.ai (https://taxr.ai) that saved me tons of headache with my realtor commission rebate situation. I was getting confusing advice from everyone until I uploaded my closing documents and commission agreement to taxr.ai and got a clear analysis of the tax implications. The service explained exactly how to structure the rebate to minimize taxes and provided documentation I could share with my lender and realtor. It showed me the specific IRS rules that applied to my situation and even generated a custom letter explaining how the transaction should be reported for tax purposes.

Just wanted to follow up - I ended up trying taxr.ai after seeing this thread. My situation was similar but also involved some investment liquidation for my down payment. I uploaded my realtor agreement, closing disclosure, and investment statements. The analysis I got back was incredibly detailed and showed me a legitimate way to structure both my commission rebate and my investment liquidation to minimize tax impact. The best part was the lender-ready documentation that explained exactly how to handle the rebate. My lender initially had the same concerns as OP's but accepted the guidance since it referenced specific IRS positions. Saved me about $4,300 in potential taxes! Definitely worth checking out if you're in a similar situation.

For anyone struggling to get straight answers from the IRS on this or any tax question - I highly recommend Claimyr (https://claimyr.com). I spent weeks trying to get through to the IRS for clarification on how commission rebates are treated. After waiting on hold for hours across multiple days, I tried Claimyr and got a callback from the IRS in under 45 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that true commission rebates that are structured properly aren't considered income to the buyer. They also explained the exact documentation needed and how my mom (also a realtor) needed to report it. Saved me hours of frustration and potentially thousands in taxes.

I need to apologize for my skepticism about Claimyr. After posting that comment, I decided to try it myself since I was desperate to resolve an issue with my amended return that's been pending for months. I assumed it would be a waste of money. I was absolutely shocked when I got a call back in about an hour connecting me to an actual IRS representative. The rep was able to see my issue and resolve it on the spot. This after weeks of me trying to get through the normal way. I don't normally write follow-ups like this, but I felt I needed to correct my previous comment. This service actually works and saved me a huge amount of frustration.

Just a tip from someone who's been in real estate for years - check your state laws regarding commission rebates. Some states have restrictions or prohibit them entirely. Also, your mom's broker might have specific policies about how rebates can be structured. Many brokerages require any rebate to go through their accounting system and get proper approval. Another option to consider: sometimes it's cleaner to just negotiate a reduced purchase price rather than dealing with rebates. If you can lower the price by the amount of the commission, it might simplify things tax-wise.

Has anyone actually received a commission rebate and had the IRS come after them for taxes? I got a 1.5% rebate on my home purchase last year ($7,500) and my accountant told me not to report it as income. He said the IRS considers it a reduction in the home's basis rather than income. Just wondering if anyone's had different experiences?

I went through something very similar when I bought my first home last year. The key distinction that helped me was understanding the difference between a commission rebate and a gift of commission income. If your mom receives the full commission as her professional income, she'll owe taxes on it regardless of what she does with the money afterward. However, there's a way to structure this as a true rebate that might avoid the income tax hit entirely. What worked for me was having my agent (who was also a family member) formally agree to a reduced commission upfront, with the savings applied directly as a buyer credit at closing. This was documented in the purchase agreement and shown on the closing disclosure as a credit from the selling agent, not as income that was later gifted. The difference is subtle but important for tax purposes. In your case, your mom could potentially agree to accept a reduced commission (say 2% instead of 5%) with the understanding that the remaining 3% gets credited directly to you at closing as a buyer rebate. This way, she never receives the full 5% as income. You'll definitely want to get your lender's approval for this structure beforehand, and make sure it's properly documented. Some lenders are more flexible than others, but most will accept it if it's clearly shown as a legitimate rebate arrangement.

I'm a first-time homebuyer who went through a very similar situation just six months ago. The confusion around commission rebates vs. gifts is really common, and I want to share what I learned after consulting with both a tax attorney and a CPA. The key issue is timing and structure. If your mom receives the commission first and then gifts it to you, she'll definitely pay income tax on the full amount as professional income. Even though gifts aren't taxable to you as the recipient, she's still on the hook for taxes on money she earned as a realtor. However, there's a much better approach that several people have touched on: structure it as a buyer rebate from the start. Your mom can agree with her broker to accept a reduced commission (maybe 2-3% instead of 5%), and the difference gets credited directly to you at closing as a buyer rebate. This way, she never receives the full 5% as taxable income. I was able to save about $8,000 in taxes by structuring it this way. The critical steps were: 1) Getting the reduced commission agreement in writing before closing, 2) Having it properly disclosed on the purchase agreement, and 3) Making sure it appeared correctly on the closing disclosure as a seller credit. Your lender might resist initially because they're not familiar with this structure, but it's completely legitimate. I had to provide some additional documentation, but once they understood it was a standard industry practice, they approved it without issues. One word of caution: make sure your mom's broker is on board with this arrangement. Some brokerages have specific policies about how rebates must be handled, so get their approval in writing early in the process.