Fran purchased an annuity that provides $12,000 quarterly payments for the next 10years. The annuity was purchased at a cost of $300,000. How much of the first quarterly payment will Fran include in her gross income?

Question

Quizplus · Accepted Answer

The portion of the annuity payment that is considered income is calculated by subtracting the return of capital from the total payment. The return of capital is the cost of the annuity divided by the total number of payments. Here, $300,000 / (10 years * 4 payments per year) = $7,500 is the return of capital per payment. Therefore, $12,000 - $7,500 = $4,500 is the amount included in gross income.

Fran Purchased an Annuity That Provides $12,000 Quarterly Payments for the Next