Mark, a calendar year taxpayer, purchased an annuity for $50,000 in 2017. The annuity was to pay him $3,000 on the first day of each year, beginning in 2017, for the remainder of his life. Mark's life expectancy at the time he purchased the annuity was 20 years. In 2019 Mark developed a deadly disease, and doctors estimated that he would live for no more than 24 months.

Question

Quizplus · Accepted Answer

DA) If Mark dies in 2020, he can claim a loss on his final return for the unrecovered cost of the annuity. This is because the total payments received would not have fully recovered the cost of the annuity by the time of his death.D) If Mark is still alive in 2039, his recovery of capital for that year is $500. This is based on the original life expectancy of 20 years and the annual payment of $3,000, resulting in a yearly recovery of capital of $2,500 ($50,000 / 20 years). Since he would have fully recovered his cost by 2037, any payments received after this period would be fully taxable, making the statement incorrect as it implies a continued recovery of capital.

Mark, a Calendar Year Taxpayer, Purchased an Annuity for $50,000