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abcabbo
Level 2

Schedule E: When to deduct expenses incurred in 2019 but paid in 2020?

Thanks in advance. Need help filling out Schedule E for a royalty interest. I incurred taxes on the interest in 2019, but paid them in 2020. Do I deduct the expense on my 2019 or 2020 Schedule E?

 

I normally pay for this expense the same year it is incurred, so it is no problem. This time I paid late. I truly appreciate any help you can give.

3 Replies
Anonymous
Not applicable

Schedule E: When to deduct expenses incurred in 2019 but paid in 2020?

most taxpayers and probably your self are cash basis.  expenses are deductible in the year paid. thus you would deduct in 2020

 

abcabbo
Level 2

Schedule E: When to deduct expenses incurred in 2019 but paid in 2020?

Ah, okay.  Thank you so much.  With individual schedules, like Schedule E, can I somehow opt to be on an accrual basis?  I do have income from work (W2) that is obviously calculated on a cash basis. So regular work income is on a cash basis.  But isn't there an option to put business income (Schedule C) and royalty income (Schedule E) on an accrual basis?

 

Thanks again for any help you can give.

Carl
Level 15

Schedule E: When to deduct expenses incurred in 2019 but paid in 2020?

To change your accounting method requires that you file IRS Form 3115 - Change in Accounting Method with your return. While the 3115 is included with the TurboTax program, this form is not simple by any stretch of the imagination.  So if you don't "really" know what you are doing, seek professional help.

Note that for rental property, when you change from cash to accrual, this will be a real PITA when a tenant stops paying you rent for *ANY* reason. Additionally, file the 3115 now will *not* help with your 2019 taxes. If anything, it will hurt.  Even tax professionals will tell you that reporting rental income on an accrual basis is a bad idea.

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