Janine, a cash-basis taxpayer, borrowed $15,000 for her business from a local bank three years ago. To increase her deductions for 2014, she pays December interest of $150 and prepays January and February interest totaling $300. The maturity date of the note is November 30, 2015. How much of the interest is deductible in 2014?

Question

Quizplus · Accepted Answer

As a cash-basis taxpayer, Janine can only deduct interest that is actually paid in the tax year. Therefore, only the $150 interest for December is deductible in 2014. Prepaid interest for January and February is not deductible until those months occur.

Janine, a Cash-Basis Taxpayer, Borrowed $15,000 for Her Business from a Local