Question

I plan to become a real estate specialist who works with seniors. Once I get my designation, I will approach seniors’groups andoffer their members a rebate on real estate commissions they would otherwise pay. How should I treat these rebates for tax purposes?

Answer

Rebates are more common than ever, and the tax answer still turns on the same two questions it always did:

whether you write a check or simply take a smaller commission.

Start Here: Are You an Employee or Self-Employed?

A stockbroker learned this the hard way. He rebated part of his commissions to a client and reported his income net of the rebates. The Tax Court said no: the rebates were not excludable from his gross income, because he was an 

employee of the brokerage firm and the commission was the firm’s to set.

He got a deduction, but only as an unreimbursed employee business expense on Schedule A.

That deduction no longer exists.

Miscellaneous itemized deductions were suspended starting in 2018, and the One Big Beautiful Bill Act made the

repeal permanent. Run those stockbroker facts in 2026, and the broker reports every dollar of the gross

commission and deducts nothing. He pays tax on the money he gave to his client.

You are safe on this point. You are a licensed real estate agent paid on a commission basis as an independent

contractor. You are self-employed for all federal tax purposes, filing a Schedule C.

The Best Structure: Take Less

When the discount comes off your commission at closing, you do nothing. Your Form 1099-NEC shows the

commission net of the discount, and the reduction is already built into your income.

There is no expense to deduct, nothing to substantiate, and no question about whether you made the payment.

Let’s reframe this for greater clarity: the money that never reaches you is never income to you. Every complication

below comes from letting the money land in your account first.

The Second-Best Structure: The Check to Your Buyer

If you write the rebate check to your client (the buyer), the IRS has been consistent. A payment or credit from the

buyer’s agent to the purchaser is an adjustment to the purchase price of the home, not income to the purchaser,

and no Form 1099 is required even when the rebate exceeds the reporting threshold.

Your customer reduces basis in the property by the rebate. The same logic runs through the automobile rebate

ruling and the down payment assistance ruling.

A Correction Worth Knowing: Part of the Rebate Ruling Is Suspended

The classic rebate authority—the automobile manufacturer ruling—held two things: the rebate is not income to the

buyer and reduces basis, and the payer deducts the rebate as an ordinary and necessary business expense.

The second part of that ruling—the part about business expense—is suspended. The IRS pulled that part of the

rule while it reconsiders whether a rebate of that type is a business expense or instead a reduction of gross

receipts. Therefore, taxpayers may not rely on that business deduction conclusion. The suspension is now roughly

two decades old, with no replacement guidance.

The basis and no-income-to-the-buyer holdings in the first part of that auto manufacturer ruling are untouched.

Key points. Don’t write a check. Reduce your commission. This is the no-problem solution. And frankly, your

taxable income is likely the same if the IRS treats your check to the buyer as a reduction in your gross income or

as a deducible expense.

Is the Rebate Legal in Your State?

About 10 states prohibit commission rebates outright, though this list shifts. Confirm with your state real estate

commission or some other authority before you market a rebate program, because in a state that bans them,

rebates are illegal payments, and illegal payments are generally not deductible for federal income tax purposes.

Key point. Consider state rebate law in your federal tax strategy.

Takeaways

If you are giving a break on your commissions, reduce the commission at closing whenever you can. Money that

never reaches you is never your income.

If you write the check, write it to your buyer. It is a purchase price adjustment, the buyer reduces basis, and you

issue no Form 1099.

Make sure to consult your state and local authorities to ensure that your reduction in commissions or your rebate

check is not a prohibited transaction.