In December 2014,Todd,a cash basis taxpayer,paid $1,200 of fire insurance premiums for the calendar year 2015 on a building he held for rental income.Todd deducted the $1,200 of insurance premiums on his 2014 tax return.He had $150,000 of taxable income that year.On June 30,2015,he sold the building and,as a result,received a $500 refund on his fire insurance premiums.As a result of the above:

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As a cash basis taxpayer,Todd can deduct the one-year prepayment for insurance in the year it was paid,2014.Because he deducted $1,200 and his net cost was only $700 ($1,200 - $500),Todd should include the $500 refund in gross income for 2015 under the tax benefit rule.

In December 2014,Todd,a Cash Basis Taxpayer,paid $1,200 of Fire Insurance