Joline is a cash basis taxpayer.A renter pays Joline the January 2017 rent in December 2016.What are the tax effects of this transaction?
I.Joline will recognize rent income for tax purposes in 2017.
II.The wherewithal-to-pay concept is the basis for Joline's recognition of the income in 2017.

Question

Joline is a cash basis taxpayer.A renter pays Joline the January 2017 rent in December 2016.What are the tax effects of this transaction?
I.Joline will recognize rent income for tax purposes in 2017.
II.The wherewithal-to-pay concept is the basis for Joline's recognition of the income in 2017.
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Quizplus · Accepted Answer

Joline, as a cash basis taxpayer, must recognize income when it is received, not when it is earned. Therefore, she must recognize the rent income in 2016, not 2017. The wherewithal-to-pay concept does not apply here as it is related to the ability to pay taxes when the income is earned or received.

Joline Is a Cash Basis Taxpayer