Fran purchased an annuity that provides $10,200 quarterly payments for the next 10 years. The annuity was purchased at a cost of $306,000. How much of the first quarterly payment will Fran include in her gross income?

Question

Quizplus · Accepted Answer

Fran's cost basis in the annuity is $306,000, and the expected return is $10,200 x 40 (10 years x 4 quarters). Therefore, the return of capital portion of each quarterly payment is $7,650 ($306,000 ÷ 40). Fran will not include this portion in her gross income. The remaining $2,550 will be included in Fran's gross income.

Fran Purchased an Annuity That Provides $10,200 Quarterly Payments for the Next