Are these scenarios considered as taxable income?

Question

I am nonresident alien in USA for tax purpose and wondering about these two scenes. Will this be considered as taxable?

• I purchased books on online store for $100 and returned back for $50. I guess $50 from selling is not "income" since you already spent more money in buying. So this should not be taxable, right?
• After buying an holiday air ticket, I had a disrupted flight and airline gives a gift card to me as goodwill. Is this gift card taxable? I think it is like someone purchase goods and not satisfied with that. And the merchant returns a part of the money you paid in a different form. So, this is not considered "income" and so, not taxable. Am I right?

Answer 1

For case 1, there is no tax due as you sold the book for less than your cost basis. If you had sold for more than $100, then you would have had a profit.

For case 2, that depends on the value of the gift card with respect to the value of your fare. Most likely that gift card is less than the cost of the fare. And in that case it would generally be treated as a reduction in the purchase price. The same way that rebates and cash back on credit card are treated.

Note if for some reason a 1099 was generated that would change the situation and you would need to consult a tax professional. Since that would indicate that the other party to the transaction had a different view of the situation.

Answer 2

You can always reduce the income by the direct expenses required to earn it, and figure out whether it is ultimately a net profit or loss. The net profit is taxable income. The loss may be tax deductible if the underlying thing is tax deductible.

For the book, the $50 revenue required a $100 expense, so that's a $50 net loss. You don't owe any income tax since it's a loss. You could take the loss as a tax deduction if you have a business trading books, or if buying the book would be tax deductible for some reason. Note that in the latter case you can only deduct the $50 not the $100.

For the airline ticket, it is to compensate you for the losses you took as a result if the delayed flight. So you tally up the $22 meal you had in the airport waiting for news, the $110 on the motel room you rented or forfeited, any other way you can peg a cash value to any losses you took. Total them up, again, a net loss is only deductible if the travel is already deductible.

Note that if the actual expenses (book, flight) were tax deductible for some reason, the cash-back reduces the amount of your tax deduction, so it has the same effect as the sale/gift being taxable income.