RE agents taxes on commission

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y

Yes it is earned income just like any other. All applicable income and self employment taxes are owed on it.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    Yes it is earned income just like any other. All applicable income and self employment taxes are owed on it.

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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    Yes, treated as regular income and irreverent if it's your own purchase/sale or not. 

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  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "Do real estate agents pay taxes on commissions they receive for the sale or purchase of their own home?"

    You may want to investigate if your principal will charge a min (thus reducing the 1099 amount) and then asking the seller to reduce price by same?

    Otherwise, anything on your 1099 is ordinary income.

    0Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    6y

    @Julia Bobe

    I happen to disagree with the previous responses, if you're talking about your residence. You still must report it as income, but I would then zero it out. These commissions affect the tax basis of your house and may affect capital gains, if any, at sale.

    If we're talking about your investment properties, then I would give a different answer. 

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    If it's called a commission on the offer & acceptance, and closing documents, and gets routed from seller to attorney's escrow to brokerage to agent, it is clearly income for services rendered.

    A rebate goes directly from seller to buyer, and if the parties wish to have such treatment, they can and should structure the transaction accordingly with their CPAs and attorneys.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    6y
    Originally posted by @Eamonn McElroy:

    ...it is clearly income for services rendered.

    What services and rendered to whom? 

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Michael, I'm not going to argue with you about this.

    I am comfortable with my position, as detailed in my previous post.  If you want to treat a commission as a rebate, that's your prerogative and I'll wish you well.

    1Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    6y
    Originally posted by @Eamonn McElroy:

    Michael, I'm not going to argue with you about this.

    I am comfortable with my position, as detailed in my previous post.  If you want to treat a commission as a rebate, that's your prerogative and I'll wish you well.

    This is disappointing, since we both usually agree that substance overrides form.

    0Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Substance over form is irrelevant here.  The substance mentioned by OP is that of a commission.  The form mentioned by OP is that of a commission.  Invoking the substance over form doctrine is off base.

    If you'd like to provide some authoritative guidance for your position.  I'm all ears.  I'll wait.

    0Reply
  • Patrick J.
    Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes
    6y

    @Julia Bobe

    Why would you even pay yourself a commission on your own home?? All you're doing is giving your broker a higher percentage of your income and it'll be added onto your 1099 at the end of the year. I would pay myself the minimum allowable by my broker. Our broker lets us pay out anything we want so I would pay myself $400 to cover the broker transaction fee and give the other side 2-2.5% for my own home since the market is hot. I believe it would be foolish to give out more than 2.5% on your own home or a family members home in this market. Keep the money in house.

    1Reply
  • Patrick J.
    Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes
    6y

    @Julia Bobe

    You're getting the money either way. Giving yourself commission adds unnecessary expenses into the equation. Pay yourself $0 if you can. I believe some brokers even allow you to sell 1-2 agent owned homes without paying anything.

    0Reply
  • Julia Bobe
    OP
    Atlanta, GA · Member since 2016 · 4 posts · 1 vote
    6y

    Thank you all for the responses, there is a lot of controversy around this issue but I rather be safe than sorry, I will include it as income in my tax return.

    0Reply
  • Julia Bobe
    OP
    Atlanta, GA · Member since 2016 · 4 posts · 1 vote
    6y

    @Patrick J. my broker didn’t charge me anything for the purchase since it was my own house, but I wanted the cash to do some things in the house, hopefully I didn’t make the wrong decision...

    0Reply
  • Patrick J.
    Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes
    6y

    @Julia Bobe

    It's going to show up on the 1099 your broker gives you at year end which gets sent to the IRS too so you're kind of forced into reporting it either way. Also, buying is different since you were paid by the seller. It's almost free money but when you sell, don't pay yourself anything.

    0Reply
  • Bob NortonPro Member
    Accountant · Slidell, LA · Member since 2019 · 382 posts · 272 votes
    6y

    @Julia Bobe The answer is yes.  And, it's at a higher tax rate, since you will be paying SE taxes on that income as well.  

    Most agents negotiate the price down (for buying) or up (for selling) by not including a commission for themselves in the purchase or sale of their personal residence.  They may have to include a minimum amount of commissions for their broker's fee, but that won't be reported to them as a commission since their broker keeps it.

    This way the commission they would have received is either received as a capital gain when they sell (tax-free under Sec 121) or adds to their equity when they buy and any future capital gain when they sell in the future.

    Capital gains are taxed at lower rates than earned income, so negotiating price for commission is the best way to go.

    2Reply
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