In December 2014, John (a cash-basis taxpayer) received a $2,000 payment from Tom who signed a year's lease to rent John's house. The $2,000 payment consisted of the following:
1st Month's Rent (for the month of December 2014) $800
Last Month's Rent (for the month of December 2015) 800
Security Deposit (to be returned at end of lease) 400
How much should John include as rental income on his 2014 tax return as a result of the $2,000 payment?
[A) 800 B) 1200 C) 1600 D) 2000]
Confused with rules on when you just ignore their [cash basis vs accrual basis] and recognize what they actually earned regardless. It's weird to be that the last month's rent is included on the 2014 return [The answer is C) 1600]. I seem to remember that you can't front-load deductible interest expenses…
I seem to have answered my own question by just writing it out. The IRS is totally down for more income but not down for more deductions. Duh! Instead of deleting this all maybe someone will benefit from this mind-flow.
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