Realtor commission (2.5%) : Closing or cash to save tax

[TexasHorseLady]

Also, if there's a lender involved, it all has to appear on the HUD 1 or there's potential mortgage fraud repercussions.

[jackmichigan]

Typically, when an agent rebates a portion of their commission, the rebated amount merely shows up as a credit to the Buyer on the closing statement (and not taxable as income). It would be foolish for an agent to actually receive the commission and then separately issue a check to the purchaser. That would make it taxable income to the agent.

[cully]

Could the commission arrangement itself just be between the Realtors?

You just get a desired price because the seller's Realtor will charge his/her seller a lower total (both sides) commission. So the seller could make it up on that end. And the seller's Realtor will have the commission he/she expects and pay your Realtor a little in addition...that .5% or whatever.

[MikeJaquish]

Originally Posted by jackmichigan

Typically, when an agent rebates a portion of their commission, the rebated amount merely shows up as a credit to the Buyer on the closing statement (and not taxable as income). It would be foolish for an agent to actually receive the commission and then separately issue a check to the purchaser. That would make it taxable income to the agent.

Bingo!

[firsthomebuilder]

Guys,

Thanks for the response. My realtor is giving me 3% - $800 on a brand new house. It is about $12,800k. My closing cost is coming out to be around $3000. How do you recommend to use the rest of the amount $9000 so as to avoid heavy taxes.
Can I use it towards downpayment of the house upfront? I am not sure if lender will allow that or if it is going to save me any taxes.

Again, the question is how to use the leftover money from realtor's credit of 3% after it is used for closing cost payment.

Thanks much!

[jackmichigan]

Originally Posted by firsthomebuilder

Again, the question is how to use the leftover money from realtor's credit of 3% after it is used for closing cost payment.

Again, a rebate from an agent is usually just shown as a credit to the Buyer on the closing statement. It is not specifically earmarked to offset the closing costs but, rather, against the total amount owed by the purchaser. So there is no "leftover" amount to be concerned about.

A lender might take that into consideration, but it is not taxable income to you.

[cully]

You could pay less and then have a lower mortgage for one thing.