By If you offer customers a rebate or discount on your commission, how you handle it can affect your taxes. Here is what to know for 2026.
The Best Approach: Reduce Your Commission at Closing
When the discount comes off your commission before you are paid, your Form 1099-NEC shows the lower amount. There is nothing to deduct, nothing to document, and no question about the payment. Money that never reaches you is never income to you.
If You Write a Check, Write It to the Buyer
The IRS treats a rebate from the buyer’s agent to the purchaser as a reduction in the purchase price, not income to the buyer. You issue no Form 1099, and the buyer reduces their basis in the home.
How you treat the payment on your own return is less settled, because the IRS has suspended part of its guidance on deducting rebates. That’s another reason to reduce the commission instead.
Employees Face a Harsher Result
A W-2 employee who rebates commissions still reports the full commission and, under current law, gets no deduction for the rebate. Independent contractor agents who file Schedule C are not affected by this rule.
Check your state’s law. About 10 states prohibit commission rebates. In those states, the rebate is an illegal payment, and illegal payments are generally not deductible.
If you want to discuss rebates, please call me on my direct line at 408-778-9651.