A cash basis taxpayer purchased a certificate of deposit for $1,000 on July 1, 2015 that will pay $1,100 upon its maturity on June 30, 2017. The taxpayer must recognize a portion of the income in 2016.

Question

Quizplus · Accepted Answer

A cash basis taxpayer must recognize income when it is received, so when the certificate of deposit matures and the taxpayer receives the $1,100, that amount will be recognized as income. However, if the taxpayer sells the certificate of deposit before it matures, any gain or loss on the sale would be recognized in the year of sale.

A Cash Basis Taxpayer Purchased a Certificate of Deposit for $1,000