Question

1. Ted was shopping for a new automobile. He found one that met his needs and agreed to purchase it for $23,000. He had shopped around and concluded that he could not get a better price from another dealer. After he had paid for the automobile, the dealer called to notify Ted that he was entitled to a manufacturer’s rebate of $1,500. The next week he received a $1,500 check from the manufacturer. How much should Ted include in gross income?

Answer 1

Possibly in Ted’s mind he is $1,500 wealthier as an outcome of the rebate, since he was eager to pay $23,000 for the automobile minus any awareness of the fact that he was eligible to the rebate. However, from the point of view of computing gross income, one could intend that he purchased an automobile for a net cost of $21,500 ($23,000 – $1,500). The point that the net cost is less than the amount Ted was willing to pay should not affect the arrival of gross income.