Question

Vernon is a cash basis taxpayer with a calendar tax year. On November 1, 2018, Vernon entered into a lease to rent a building for use in his business as $4,000 a month. On that day Vernon paid 6 months rent on the building, a total of ($24,000 x 6 months). How much may Vernon deduct for rent expense on his 2018 tax return?

Answer 1

Answer:

$8,000

Explanation:

From 1 November 2018 to 31 December 2018 will give us 2 months

Lease to rent a building for use in his business as $4,000 a month

Hence:

($4,000×2)= $8,000

Therefore Vernon will deduct $8,000 for rent expense on his 2018 tax return.

Answer 2

Answer:

$8,000

Explanation:

From the question above it is showed that the total prepaid rent paid by Vernon for the six months period (November-April) was $24,000 (6 × $4,000).

The amount to be deducted for rent expense for the year 2018 will be $8,000 (2months × $4,000).

This rent expense will be deducted for 2018 tax purposes only because it was incurred in 2018.