Joe,a cash basis taxpayer,took out a 12-month business loan on December 1,2014.He prepaid all $3,600 of the interest on the loan on December 1,2014.Joe can deduct only $300 of the prepaid interest in 2014.

Question

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Cash basis taxpayers are required to allocate prepaid interest to the tax years to which the interest relates.Therefore,Joe can deduct only $300 in 2014 and the other $3,300 in 2015.

Joe,a Cash Basis Taxpayer,took Out a 12-Month Business Loan on December