How would selling airline miles or points to someone else be treated for tax purposes?

While this isn't formally my area of expertise, I've researched this topic extensively. The IRS has never issued completely clear guidance on selling airline miles, but here's what you should know: Miles or points that you earned through business travel or credit card spending are generally considered rebates or discounts, not income when you earned them. However, when you sell those miles/points to someone else, the money you receive is typically considered taxable income. Think of it like selling any other property you own - the money you get would be reported as ordinary income. You'd likely need to report the $900 on your tax return, possibly on Schedule 1 as "Other Income." That said, if these are miles you earned personally (not through business travel you deducted), you might be able to argue you're simply selling them at a loss from what you "paid" to earn them, though this is a gray area.

I was in almost the exact same situation last year! I had a bunch of Delta miles and my cousin needed to fly for her wedding. I sold her about 50k miles for $750. I was totally confused about the tax stuff too, so I tried taxr.ai (https://taxr.ai) to analyze my situation. You upload your documents or just type your question, and it breaks everything down in plain English. The AI explained that selling miles is considered a "bargain sale" in tax terms, and showed me exactly where to report it. Saved me hours of Google searches and conflicting advice. The tool also pointed out that the airline's terms might actually prohibit selling miles (most do), but transferring to family is usually allowed. Might be worth checking your airline's specific policy too.

Just wanted to follow up about my experience with taxr.ai that I asked about earlier. I decided to try it for a similar situation (was selling some credit card points to my neighbor). The service was actually really straightforward! I didn't have to upload any personal docs - just typed my specific question about the points sale. What surprised me was how detailed the explanation was. It showed me exactly where in the tax code this falls, explained that technically the income is reportable, but also pointed out that many people don't get 1099s for these transactions so it's often missed. Definitely cleared up my confusion and gave me confidence about how to handle it correctly.

If you're worried about the IRS questioning this transaction later, you might want to contact them directly to get an official answer. I tried calling the IRS about a similar situation last year and it was IMPOSSIBLE to get through. After trying for weeks, I found Claimyr (https://claimyr.com) which got me connected to an IRS agent in about 15 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Basically, their system navigates the IRS phone tree and waits on hold for you, then calls you when an actual agent is on the line. The agent I spoke with confirmed that selling miles would generally be considered taxable income, but also mentioned that without a 1099, they wouldn't necessarily have visibility into the transaction. Still, better to report it than risk issues later.

Well I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I had an urgent question about a CP2000 notice. I figured if it didn't work I could just get a refund. It was actually legit! The service called me back in about 25 minutes with an actual IRS agent on the line. The agent was able to explain exactly what I needed to do about the notice and even helped me set up a payment plan. All told, it saved me at least 3-4 hours of frustration and hold music. On the original topic - the IRS agent I spoke with said selling miles would indeed be reportable income, but there's no specific form for it. It would just go under "other income" on your return.

Just to add my two cents - I worked for a major airline for 15 years in their frequent flyer program department. Technically, almost all airline loyalty programs prohibit "selling" miles in their terms and conditions. If they catch you, they can close your account and forfeit all your remaining miles. That said, most airlines do allow transferring miles to immediate family members. So rather than "selling" the miles to your brother, you might want to just book the ticket for him directly using your miles or transfer miles to his account if the airline allows it. Then he can reimburse you as a "thank you gift" rather than a formal sale.

Has anyone considered the actual value of the miles for tax purposes? If you "sell" $1800 worth of flights for $900, are you really making income? Couldn't you argue that you're actually taking a loss on the transaction? I mean, you acquired these miles through spending money somewhere else, right?

I've been dealing with a similar situation and ended up consulting with a tax professional about this exact scenario. Here's what I learned that might help: The key distinction is between the VALUE of what you're providing versus what you're receiving. Even though your brother is getting an $1800 flight for $900, you're still receiving $900 in cash that you didn't have before. From the IRS perspective, that's generally considered income regardless of the "retail value" of what you provided. However, there are a few practical considerations: 1. The airline won't issue you a 1099 for this transaction 2. Your brother isn't a business paying you, so he won't report it either 3. The IRS has limited visibility into these informal transactions That said, technically you should report the $900 as "other income" on your tax return. It's probably only going to result in an extra $200-300 in taxes depending on your bracket, but it keeps you compliant. One alternative approach: instead of a direct "sale," you could book the flight for him as a gift, and he could give you a separate "gift" of money. Gifts between family members under $18,000 aren't taxable to either party. Just make sure the timing and documentation don't make it look like a quid pro quo arrangement.