Joe,a cash basis taxpayer,took out a 12-month business loan on December 1,2011.He prepaid all $3,600 of the interest on the loan on December 1,2011.Joe can deduct all $3,600 of the prepaid interest in 2011.

Question

Quizplus · Accepted Answer

Under the cash basis method, prepaid interest must be allocated over the period to which it applies, so Joe cannot deduct the entire $3,600 in 2011.

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