Sam,a calendar year taxpayer,purchased an annuity contract for $3,600 that would pay him $120 a month beginning on January 1,2013.His expected return under the contract based on his life expectancy is $10,800.Assuming Sam received a total of $1,440 in payments during 2013,how much of this annuity income is included in Sam's gross income for 2013,using the general rule?

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Quizplus · Accepted Answer

Under the general rule, a taxpayer must include in gross income for the tax year the amount of annuity income received for that tax year, reduced by the exclusion ratio. The exclusion ratio is based on the taxpayer's expected return and the amount paid for the annuity. In this case, Sam's exclusion ratio is calculated as $10,800 / $3,600 = 0.3333. Therefore, only 33.33% of the $1,440 in payments received during 2013 is included in Sam's gross income. This equals $480 ($1,440 x 0.3333), so the answer is choice C.

Sam,a Calendar Year Taxpayer,purchased an Annuity Contract for $3,600 That