Home Buying in Pioneer>Question Details

Lynne, Other/Just Looking in Pioneer, CA

Why do I have to pay taxes on the purchase price of a house, when that includes the real estate commissions?

Asked by Lynne, Pioneer, CA Mon Sep 22, 2008

Can I deduct the real estate commission, pay that out of pocket myself as a buyer, and write the offer for less the commision, that way reducing my taxes legally. Otherwise,all buyers are paying taxes for 30 years on that commission. It makes no sense.

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Jared’s answer
Most people don't have the cash in hand to pay the comission since we live in a "how much can I afford" society. If you bury it in the house price you can finance it. It also allows the whole line of how a buyer gets their agent "free."
Math isn't as important as good sales pitches to most people.
0 votes Thank Flag Link Mon Sep 22, 2008
You don't pay any real estate commission as a buyer and, the purchase price of a house has nothing to do with real estate commission from a taxation standpoint.

How can you deduct something you don't pay for?
0 votes Thank Flag Link Fri May 9, 2014
I'm not a real estate agent or anything but I doubt you would pay taxes on a commission fee, it's a service. You would only get taxed on the purchase price of the home. I think if you tried to pay part of the purchase price "Under the table" to avoid paying some of the sales tax, it would be tax evasion. If you take your car to a mechanic, your only taxed on the parts you had to buy for the repairs. The labor is a service & therefore, it's not taxed. The shop would then pay the mechanics "commission" or salery with a portion of what you paid them for your repairs. If you chose to pay the labor portion of your bill in cash & put the parts sale on your credit card, the taxes would remain the same since the service you were provided is never taxed in the first place and you wouldn't be charged for the mechanic's income tax either. I believe the same would be true weather the service you recieve is getting your car fixed by a professional or getting help with a real estate transaction by a professional. It's a service and your not being taxed on it no matter how you choose to pay it.
0 votes Thank Flag Link Fri May 9, 2014
Lynne, That is an excellent question. I believe the best answer would be for you to consult with your accountant first and foremost. Every person's individual situation is different depending on their own scenario, but you may be surprised (plesantly even) once you speak to a qualified professional about how that scenario might impact you.

My question to you is why would you, as a buyer, pay any real estate commissions anyway, when usually they are paid by the seller? If you are concerned about paying the taxes over a 30 year period, maybe you could have your real estate agent negotiate the offer on your behalf with that scenario in mind, which could put you in a better position when you do your taxes by incurring some real estate expenses at purchase. Of course speak to a qualified accountant first - not all accountants are created equally either. Make sure you speak to one that specializes in real estate and/or at least owns investment property themselves.

Good luck to you!
0 votes Thank Flag Link Mon Sep 22, 2008
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