Christopher, a cash- basis taxpayer, borrows $1,000 from ABC Bank by issuing a 3- month note on December 1, 2018. Christopher receives $940 but must repay $1,000 on the due date. The amount of interest expense deductible in 2018 is $20.

Question

Quizplus · Accepted Answer

A cash-basis taxpayer can only deduct interest when it is actually paid. Since the note is due in 2019, no interest is paid in 2018, so no deduction is allowed in 2018.

Christopher, a Cash- Basis Taxpayer, Borrows $1,000 from ABC Bank