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California State University, Northridge **We aren't endorsed by this school
ACCT 440
Oct 19, 2023
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' 1 A } 7Hide Explanationr: On December 1 of the current year, Krest, a self-employed cash basis taxpayer, borrowed $200,000 to use in her business. The loan was to be repaid on November 30 of the following year. Krest paid the entire interest amount of $24,000 on December 1 of the current year. What amount of interest was deductible on Krest's current year income tax return? A. $0 B. $2,000 Choices "A", "C", and "D" are incorrect, per the above explanation. C. $22,000 Choice "B" is correct. $2,000 of interest is deductible on her current year tax return. D. $24,000 Total interest 24,000 Divide by # of months of the loan +12 Monthly deduction 2,000 Times: Months in current year x 1 Total current year deduction 2,000 Prepaid interest must be allocated over the period of the loan, even for a cash basis taxpayer.
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