Martin purchased an annuity contract at the beginning of 2001 for $84,000.The contract specifies that he will receive $2,000 per month for life.Martin receives his first payments on July 1,2013,when he was 67 years old.Martin dies on August 15,2018 (the August payment was received prior to his death).What amount,if any,should be deducted on Martin's 2018 tax return as a result of failing to receive his expected return on the annuity contract?
A)$54,400 can be claimed as a deduction on his final return.
B)$59,200 can be claimed as a deduction on his final return.
C)$1,600 can be claimed as a deduction on his final return.
D)No deduction is reported because a decedent is not required to file a final return.

Question

Quizplus · Accepted Answer

Martin received 5 years and 1.5 months of payments from the annuity, which is a total of 61.5 payments (since he received payments for half a month in August). The expected total payout from the annuity would have been $2,000 x 12 months x 17 years (from age 67 to 84) = $408,000. However, he only received $2,000 x 61.5 payments = $123,000. Therefore, the difference between the expected payout and actual payout is $408,000 - $123,000 = $285,000. This amount can be claimed as a deduction on Martin's final tax return, up to the limit of his adjusted gross income (AGI). Assuming Martin's AGI is greater than $59,200, he can claim that amount as a deduction.

Martin Purchased an Annuity Contract at the Beginning of 2001