Question

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

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Answer 1

True For a cash basis taxpayer, prepaid rent expenses are not fully deductible in the period they are paid but must be prorated over the period to which they apply.

Step-by-step explanation:

The question pertains to the deductibility of prepaid expenses for tax purposes. In general, under the cash basis accounting method, expenses are only deductible in the period in which they are actually paid.

However, when it comes to prepaid expenses, such as rent, the IRS requires that the expense be allocated and deducted over the period to which it applies, rather than immediately at the time of payment.

Therefore, prepaid rent paid on September 1 by a calendar year cash basis taxpayer for 18 months would not be entirely deductible in the current period; it would need to be prorated and deducted over the 18-month period to which it applies.