Another tax question?

Question

Hypothetical question

Jim auctions $10,000 worth of Visa gift cards on E-Bay. (100 cards, each worth $100, not counting the $5.95 activation fee for each card.)

By some miracle, Joe is the only bidder and wins the auction with a $1 bid.

Does Joe owe income taxes on $9,999?

Answer 1

no income tax is tax on your actual income.  If he make $1 on this auction but cost him $1. to post on eba then he owe $0 to tax.

Answer 2

Nope.  Joe just bought some gift cards.  If he sells them for $9,999, then he would owe taxes on the profit.  Just because he got a good deal on the cards doesn't make them income.  After all, you don't own income if you buy something on sale for 1/2 price.