Advance Rent Payment- Cash Basis Taxpayer

Even if a cash basis taxpayer you can only deduct rent for the year to which it applies unless it qualifies under the 12 month rule which is 12 months after the right to the benefit begins or the end of the tax year after the tax year the payment is made.

Below is an excerpt from Publication 535.

Rent paid in advance. Generally, rent paid in your trade or business is deductible in the year paid or accrued. If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. You can deduct the rest of your payment only over the period to which it applies.

Example 1.

You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. Your rent is $12,000 per year. You paid the first year's rent ($12,000) on June 30. You can deduct only $6,000 ( × $12,000) for the rent that applies to the first year.

Example 2.

You are a calendar year taxpayer. Last January you leased property for 3 years for $6,000 a year. You paid the full $18,000 (3 × $6,000) during the first year of the lease. Each year you can deduct only $6,000, the part of the lease that applies to that year.

http://www.irs.gov/publication...