Timing of Tax Deductions

This page is under development 43 words http://www.traderstatus.com/prepaidexpenses.htm

All-events test’s recurring-item exception under IRC §461(h)(3)

Rev. Rul. 2012-1

IRS Clarifies Recurring-Item Exception

IRS Sheds Light On The Use Of The Recurring Item Exception

Chief Counsel Advice CCA 201442048

Regs. §1.451-5(b)    §1.451-5(d)

Accelerating Your Deduction for Prepaid Expenses

Cash-basis taxpayer paying for deductible items with a credit card:
IRS Revenue Ruling 71-216 previously held that once the credit card was paid off, than at that time the taxpayer may take the expense deduction. But later it was decided, with IRS Revenue Ruling 78-38 (and re-confirmed in T.C. Memo 2015-83) that when a credit card is used to pay for a deductible item a 3rd party loan / debt is incurred and when that debt happens to be repaid does not have any bearing on when the deduction is allowable.  Therefore, the item is deductible when the credit card is used to make a purchase and not when cash is disbursed to pay down the balance owed.

But that when the loan / debt is coming from the store or the provider of the item being deducted this is not the same situation. Examples are an in-house store open charge account or charge card, or a bank mortgage paying some of your interest by internally lending you the money (increasing the debt balance) to make the payment.  One notable exception to this rule is for points charged with the original purchase money mortgage loan for the acquisition of a taxpayer’s primary residence.