Exception to rebates not being taxable?

[Lemma]

I know rebates, including credit card rewards, generally aren't taxable, except if you're buying an item for resale in which case any rebate must be subtracted from the cost basis for that item. However, there are a few scenarios where I'm not sure whether or how this rule would apply and despite lots of research I can't seem to find any answers.

1. What if the rebates are more than the original price of an item? Let's say I buy an item that is free after mail-in rebate and also earn cash back from a credit card on top of that. Let's further assume the item is expensive enough that the cash back pays for the stamp to send in the rebate with some profit left over. Now suppose I go on to sell that item on eBay. Do I have a negative cost basis? Or can my basis be no lower than zero? If the basis is 0, would that extra rebate income be reported some other way?

2. What if I get the rebate buying a cash equivalent? If I never sell anything at any point in this process, only buy things, is it taxable? Suppose I can repeatedly buy $1000 money orders for a net cost of $980. That seems like it should be income, even though I never sold anything. If that's the case, would I report that I "sold" the money order for $1000 when I deposited it in my bank account, and deduct the $980 as my cost basis? Or would I report any rebate I received on that $1000 as income and deduct my costs in obtaining the rebate (suppose $30 in rebates minus $10 in costs for the same net $20 profit)?

 

[Lemma]

2. They don't give cash back for buying cash equivalents. In fact it is considered a cash advance with very high interest and no grace period so you pay from the date of purchase. Also the vast majority of places won't let you buy a money order with a credit card. They aren't idiots you know. The card could be stolen or it's money laundering. You would have the police on you so fast you wouldn't believe it.

You can't do this directly, but there are ways to do it indirectly. There are various prepaid cards and gift cards that can be purchased with a credit card, and then used to buy money orders, or used to pay your CC bill via bill pay. Unless the purchase is explicitly flagged as a cash advance, which it usually isn't for buying gift cards, the CC company only sees the store and the amount of the transaction in most cases. They have no idea what you are buying. And this wasn't a hypothetical example, many people do this and make large profits, although a lot of them are focused on earning airline miles instead of cash back. Google "manufactured spending" if you want to know more.