Are rebates viewed as taxable income by the IRS?

0

Say I buy a case of beer that has a $5 rebate attached to it. I send my UPCs, cash register receipt with the price circled, etc., and eight weeks later I get my $5.00 check. It goes toward more beer, and I'm a happy camper.

Now, is that $5.00 taxable income?

I've heard two explanations:

1) Yes, because "... gross income means all income from whatever source derived ..." according to the IRS.

2) No, because it's viewed as a discount to retail price rather than income.

Which is correct?

asked Oct 06 '09 at 05:43

mbhunter's gravatar image

mbhunter ♦♦
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2

Number 2 is correct - it is not considered taxable income. From IRS Publication 17:

Cash rebates. A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate.

Example.

You buy a new car for $9,000 cash and receive a $400 rebate check from the manufacturer. The $400 is not income to you. Your basis in the car is $8,600. This is the basis on which you figure gain or loss if you sell the car and depreciation if you use it for business.

answered Oct 08 '09 at 16:38

Ruth's gravatar image

Ruth
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