PG LLC is an accrual method partnership,manufacturing drones.Patty,75% partner in PG and a cash method taxpayer,lends $100,000 to PG as a working capital loan on January 1,2019,with interest due at an arms-length rate.PG accrues,and reports on its income statement,$5,000 of interest expense on this loan.PG pays the interest due to Patty on January 2,2020.On PG LLC's 2019 tax return,it will deduct the $5,000 interest expense.

Question

Quizplus · Accepted Answer

Under the accrual method, PG LLC can only deduct the interest expense when it is both incurred and paid. Since the interest was paid in 2020, it cannot be deducted on the 2019 tax return.

PG LLC Is an Accrual Method Partnership,manufacturing Drones