Question

A cash basis taxpayer purchased a certificate of deposit for $1,000 on July 1, 2017 that will pay $1,100 upon its maturity on June 30, 2019. The taxpayer must recognize a portion of the income in 2018.

A. True
B. False

Answer 1

No, a cash-based taxpayer does not need to recognize a portion of the income from the CD in 2018; the income is recognized in 2019 when the CD matures and the money is received.

Step-by-step explanation:

The student's question asks whether a cash-based taxpayer must recognize a portion of the income from a certificate of deposit (CD) in 2018 if the CD was purchased on July 1, 2017, for $1,000 and will pay $1,100 upon its maturity on June 30, 2019. The answer to this question is false. As a cash-based taxpayer, income is recognized when it is actually or constructively received, not when it is earned. Therefore, the increase in value of the CD is not recognized until the CD matures and the money is actually received, which would be in 2019 in this scenario.