Kate is an accrual basis, calendar-year taxpayer. On November 1, 2014, Kate leased out a building for $4,500 a month. On that day Kate received 7 months rental income on the building, a total of $31,500 ($4,500 × 7 months). How much income must Kate include on her 2014 tax return as a result of this transaction?

Question

Quizplus · Accepted Answer

As an accrual basis taxpayer, Kate must recognize income when it is earned, not when it is received. Since she received 7 months of rent in advance, she must include the entire $31,500 in her 2014 income.

Kate Is an Accrual Basis, Calendar-Year Taxpayer