Are Commission Rebates Legal? The State-by-State Answer
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Yes, in most of the country. A real estate commission rebate, where your broker returns part of its fee to you, is legal in New York, New Jersey, and about 40 states. Roughly 10 states restrict or ban it. The federal government encourages rebates, and the IRS treats them as a reduction of the purchase price rather than as income.
Our whole model is the rebate, so we had to get this right. We disclose it in writing to the buyer and the lender for every deal.
The short version: legal in about forty states, which is a strange sentence to have to write about giving someone money.
| Question | Answer |
|---|---|
| Is it legal in New York? | Yes, expressly, under Real Property Law section 442 |
| Is it legal in New Jersey? | Yes, since 2010, with specific broker rules |
| Is it a RESPA kickback? | No, if it isn’t tied to a referral of business |
| Is it taxable to the buyer? | No, per a 2007 IRS ruling, it reduces your cost basis |
| Where is it banned? | Roughly 10 states; the published lists disagree |
Are real estate commission rebates legal?
In about 40 states and the District of Columbia, yes. The U.S. Department of Justice has pushed for rebates for years, calling bans a policy that “artificially inflates the cost of real estate services.” Two state commissions, South Dakota and West Virginia, dropped their anti-rebate rules after DOJ investigations.
Roughly 10 states restrict or prohibit them. The exact list is contested, which we get to below.
Where rebates are legal, they’re a normal, disclosed part of the closing, shown as a credit on the settlement statement or paid by check after closing.
The three questions that decide it
State law, RESPA, and your lender’s underwriter walk into a closing. Each has a separate say.
- State law: May a broker do this? In most states, yes. In about 10, no or with limits.
- RESPA: Is it a kickback? Federal law bans paying for referrals. A commission rebate to the buyer is fine as long as “no part of the commission rebate is tied to a referral of business,” per DOJ guidance on the rule.
- Your lender: Will it appear on the Closing Disclosure? The underwriter has to approve a credit. Lenders usually allow the rebate as a closing-cost credit rather than toward the down payment, and total credits generally can’t exceed your actual closing costs.
Where it works, the money is real. See what NestApple returns to buyers and price a deal in our closing-cost calculators.
New York: expressly allowed
New York’s statute names four kinds of people you’re allowed to hand money to. Real Property Law section 442 says, “Nothing in this section shall prohibit a real estate broker from offering any part of a fee, commission, or other compensation received by the broker to the seller, buyer, landlord, or tenant.”
The Department of State confirmed it in a 2008 letter to the DOJ: offering “a cash rebate, in order to attract a new customer or client does not run afoul of the statute.”
So in New York, a rebate is not a gray area. It’s written into the license law. Our rebate guide covers how it actually reaches you.
Which states restrict or ban rebates
The lists that copy each other can’t agree on Louisiana. Most sources name about nine states, commonly Alabama, Alaska, Kansas, Mississippi, Missouri, Oklahoma, Oregon, Tennessee, and either Iowa or Louisiana.
Louisiana is the clearest example of the confusion. A 2021 Louisiana Attorney General opinion found that state law does “not prohibit consumer commission rebates,” yet older blog lists still show it as banned. Iowa restricts rebates to deals involving a single licensee, which some sources call a ban and others a limitation.
The reliable source is your state’s real estate commission, not a blog. New Jersey and New York both allow rebates. If you’re elsewhere, check the commission directly. This page is part of our guide to NYC commissions and rebates.
Is a commission rebate taxable?
No. The IRS treats it as a discount, not a paycheck. In Private Letter Ruling 200721013, the IRS held that “a payment or credit at closing from Taxpayer represents an adjustment to the purchase price of the home and generally is not includible in a purchaser’s gross income.”
No 1099 is required. One consequence: because the rebate lowers your purchase price, it also lowers your cost basis, which can raise a capital gain if you sell later. For most homeowners, the federal home sale exclusion covers that.
The ruling was issued to one taxpayer and “may not be used or cited as precedent,” but it’s the position the industry relies on, and rebate brokers have operated under it for nearly two decades.
What we do
We write the rebate into the agreement, so nobody has to trust a handshake. Your buyer agency agreement states the share that comes back to you. We disclose it to your lender, and it shows up on the closing statement.
See what NestApple returns to buyers, read the mechanics in our rebate guide, and price a real deal in our closing-cost calculators.
Common questions
Are commission rebates legal in New York? Yes, expressly. Real Property Law section 442 permits a broker to give part of its fee to the buyer, seller, or tenant, and the Department of State confirmed it in 2008.
Is a rebate a RESPA violation? No, as long as it isn’t tied to a referral of business. DOJ guidance states that a commission rebate to the buyer does not violate RESPA section 8 under those terms.
Which states ban real estate rebates? About 10, but the published lists disagree, particularly on Louisiana and Iowa. Check your state real estate commission for the current rule.
Do I owe taxes on a commission rebate? No. The IRS treats it as a reduction in the purchase price, not income, so there’s no 1099. It does reduce your cost basis in the home.
Nicole Fishman Benoliel co-founded NestApple in 2017. She's a lawyer admitted to the New York bar - her law degree is from La Escuela Libre de Derecho in Costa Rica, with further study at IE Business School in Madrid and an LLM from Fordham in New York. She does not act in a legal capacity at NestApple; every client is referred to an attorney who handles real estate deals full time.
