Joline is a cash basis taxpayer.A renter pays Joline the January 2016 rent in December 2015.What are the tax effects of this transaction?
I.Joline will recognize rent income for tax purposes in 2016.
II.The wherewithal-to-pay concept is the basis for Joline's recognition of the income in 2016.

Question

Joline is a cash basis taxpayer.A renter pays Joline the January 2016 rent in December 2015.What are the tax effects of this transaction?
I.Joline will recognize rent income for tax purposes in 2016.
II.The wherewithal-to-pay concept is the basis for Joline's recognition of the income in 2016.
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Quizplus · Accepted Answer

As a cash basis taxpayer, Joline must recognize income when it is actually or constructively received, which means she should recognize the rent income in 2015, not 2016. The wherewithal-to-pay concept does not apply here as it is more relevant to accrual basis taxpayers.

Joline Is a Cash Basis Taxpayer