If you sell your extra stuff at a yard sale, it normally wouldn't create taxable income because you'd be selling it for less than you paid for it (at a loss). If you did for some reason sell some item for more than you paid for it, you do indeed have taxable income. Note this is true even if you sold a bunch of other stuff at a loss; they don't offset.

But frequent flier miles are different. You paid nothing for them, so you have no tax basis, so your entire proceeds represent taxable income. You could argue that the miles were included in the cost of the ticket and therefore you DO have basis, but since the tickets are sold for the same price to people who aren't members of the mileage program, you'd probably lose that argument.