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.

I appreciate everyone sharing their experiences and insights on this topic. As someone new to this community, I've been following along and learning a lot from the discussion. From what I've gathered, it seems like there are really two separate issues to consider: the tax implications and the airline policy implications. On the tax side, most experts seem to agree that the $900 you receive would technically be reportable income, even though enforcement is practically non-existent for these small family transactions. What struck me most was the airline policy angle that Ellie brought up - I had no idea that selling miles could result in account closure. That seems like a much more immediate risk than any tax issues, since airlines apparently do monitor for suspicious patterns. For someone in Marcus's situation, it sounds like the safest approach might be to simply book the ticket directly for his brother using the miles, then let his brother reimburse him however he wants to handle it personally. That way there's no formal "sale" of miles from the airline's perspective, and the tax question becomes more of a gray area around informal family assistance. Thanks to everyone who shared their real experiences - it's much more helpful than trying to parse through conflicting information online!

This has been such a helpful discussion! As someone who's accumulated a decent amount of miles over the years and has family members who could benefit from using them, I never realized how many angles there were to consider. The consensus seems pretty clear: while the $900 should technically be reported as income for tax purposes, the bigger immediate concern is violating your airline's terms of service. I really appreciate Ellie's insider perspective on how airlines actually monitor these things - it sounds like keeping it within family and low-key is key. One thing I'm curious about that hasn't been mentioned much: what about the state tax implications? I know some states have different rules around income reporting. Would this $900 need to be reported on state returns too, or do most states just follow the federal treatment? Also, for future reference, does anyone know if the tax treatment would be different if you were transferring points from a hotel loyalty program versus airline miles? Or do the same general principles apply across all loyalty programs? Thanks again to everyone who shared their real-world experiences - this kind of practical advice is invaluable!