When realtor buy an investment property and put their realtor rebate back...

[Angel]

...to the settlement, is it taxable? I have two answer.

1) If put back to settlement, it is not taxable. It only reduce your purchase price, when you sell your investment property, you have to pay tax. You only need to pay tax if you get check directly from the builder.

2) Another group think 1) only apply to second home. For realtor buy investment property, even realtor put rebate back into settlement, they still have to claim it as income and pay tax on it.

Which one is true, any website as support document? Thanks.

If the law will be different from state to state? I am in Maryland.

[glenn]

I believe I understand your question. A builder in your area must be offering a rebate when you buy a home.

It is my understanding that a rebate is in effect a reduction in price so it would not be taxable income. It does reduce the price you pay for the house so your basis cost on an investment property would be lower and cause you to show more profit on the sale (and owe more taxes).

For instance when you buy a $5000 TV and get $500 back the IRS treats that as though you bought the TV for $4500 and there is no tax on the $500.

If on the other hand you are talking about a bonus paid to Realtors when they sell a home, and the Realtor is thinking about using it to help him buy an investment house for himself...then that bonus is the same as a commission. It is normally counted as income and is taxed. I would ask the builder to pay my closing costs instead, or upgrade the house, or reduce the price. Why earn taxable income when you can effectively get the same income tax free (or at least deferred).

Of course you need to talk directly with your tax adviser and clearly explain what you are doing so you don't screw up. Getting advice over the Internet is often worth what you pay for it.

[AngeloElectro]

There are two different taxes, income tax and capital gains tax.

The Realtor pays income tax on sales commission, or any income he receives. Capital gains tax is due after the sale of the property if the property is sold at a profit.

If a Realtor collects a sales commission, and applies his commission to the sale of a property he is buying, then he would owe income tax on that sales commission. It is income to him, and he is spending it to buy a house. It is taxable income whether he is buying investment property, or his personal residence, or a second home.

If the Realtor receives a discount on the property he is buying, it is possible that the discount might be considered income to him. Since most Realtors are self employed, the discount of the sale price can be treated in different ways. The Realtor would need to explain why he is receiving the discount, especially if it is a discount that others would not normally receive.

Cash rebates from a manufacturer (builder-developer) are not included in income:
http://www.flpba.org/pdf/Tax%20Tips/What%20income%20is%20Taxable.pdf

Generally, if someone receives property (or discounted price on property) instead of cash as payment for services, then the fair market value of the property should be included as income. The same is true of bartering. The fair market value is included in the Realtor's income, and he pays income tax on that amount.

In figuring capital gains tax, after the sale of the property, the basis of the property would not include any discount to the property's sales price. However, if the Realtor applied his commission to the settlement, then it would be considered part of the price he paid for the property, and it would become part of his basis.
It doesn't matter if this is investment property, or the Realtor's main home. The basis is figured the same way.

When a Realtor, or anyone, sells a property they have lived in, it might be possible to exclude part of the gain from capital gains tax. If all or part of the gain can be excluded, then the capital gains tax that is due on the sale of the house would be less, or perhaps no tax at all.

This information applies to Federal income tax.

Visit the State of Maryland website to find any special rules Maryland has added to their tax code for their state income tax..
http://www.comp.state.md.us/