Joline is a cash basis taxpayer.A renter pays Joline the January 2013 rent in December 2012.What are the tax effects of this transaction?
I.Joline will recognize rent income for tax purposes in 2013.
II.The wherewithal-to-pay concept is the basis for Joline's recognition of the income in 2013.

Question

Quizplus · Accepted Answer

As a cash basis taxpayer, Joline must recognize the rent income in 2012 when she actually receives the payment, not in 2013. The wherewithal-to-pay concept does not apply here as it is related to the ability to pay taxes, not the timing of income recognition for cash basis taxpayers.

Joline Is a Cash Basis Taxpayer