In 1998, Carol purchased a single life annuity for $150,000 that would pay her $15,000 per year for life beginning in 2011.Carol's life expectancy from 2011 forward on which the payments were based was 20 years.
A)How much would Carol include in income if she is still receiving payments in 2031?
B)If Carol dies in 2019 after receiving that year's payment, what is the unrecovered investment remaining?
C)How is the unrecovered investment treated for tax purposes?

Question

Quizplus · Accepted Answer

B  C  A) In 2031, Carol would include the entire $15,000 payment in her income because by then she would have fully recovered her investment in the annuity.  B) If Carol dies in 2019, the unrecovered investment is $75,000, which is the original investment of $150,000 minus the $75,000 she received over 5 years (2011-2015).  C) The unrecovered investment is deductible on Carol's final tax return as a miscellaneous itemized deduction not subject to the 2% floor.

In 1998, Carol Purchased a Single Life Annuity for $150,000