Question

Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2019, she leases an office building to use in her business for $197,250 for an 18-month period. To obtain this favorable lease rate, she pays the $197,250 at the inception of the lease.

How much rent expense may Maud deduct on her 2019 tax return? Round any calculations to two decimal places and round the final answer to the nearest dollar.

Answer 1

$197,250

Step-by-step explanation:

A cash basis taxpayer records expenses when payments are issued, i.e. they record expenses when they pay for them regardless of the period to which the payment relates to. This applies to all expenses, including rent. In this case, the whole amount ($197,250) will be recorded as expense on February 1, 2019. The same logic applies to revenue, which is recorded only when cash is received.