Final answer:
Max, as a cash-basis taxpayer, must report the first and last month's rent totaling $1,900 as income for 2022. The security deposit of $400 is not considered income as it is potentially refundable to the tenant.
Step-by-step explanation:
The question pertains to the amount of income that Max, a cash-basis taxpayer, must report for the year 2022 after renting an apartment and receiving the first and last month's rent plus a security deposit. According to cash-basis accounting, income is reported in the year it is actually received. As such, Max would need to report the first and last month's rent as income for the year 2022 but not the security deposit, as it is refundable to the tenant at the end of the lease assuming there are no damages.
The first and last month's rent received would total $1,900, and that is the amount Max should report as income for 2022. The security deposit of $400 is not reported as income, as it is intended to be returned to the tenant barring any damages. Therefore, the correct answer to the amount of income Max must report for 2022 is B. $1,900.