Bart's spouse, Carla, dies during the current year. Carla's life insurance policy names Bart the sole beneficiary of the $2 million proceeds. Bart invests the $2 million in a bank certificate of deposit (CD). For the current year, Bart earns $98,000 interest from the CD. What are the tax effects of these events for Bart?
I.The $98,000 is included in gross income.
II.The $2 million is included in gross income.

Question

Bart's spouse, Carla, dies during the current year. Carla's life insurance policy names Bart the sole beneficiary of the $2 million proceeds. Bart invests the $2 million in a bank certificate of deposit (CD). For the current year, Bart earns $98,000 interest from the CD. What are the tax effects of these events for Bart?
I.The $98,000 is included in gross income.
II.The $2 million is included in gross income.
​

Quizplus · Accepted Answer

The $98,000 interest earned from the CD is considered taxable income and must be included in Bart's gross income. However, the $2 million life insurance proceeds are generally not included in gross income, as they are considered a nontaxable inheritance.

Bart's Spouse, Carla, Dies During the Current Year