Seth,a calendar year taxpayer,purchased an annuity for $20,000 in 2008.The annuity was to pay him $2,000 on the first day of each year,beginning in 2008,for the remainder of his life.Seth's life expectancy at the time he purchased the annuity was 15 years.In 2010,Seth developed a deadly disease,and doctors estimated that he would live for no more than 24 months.
A)If Seth dies in 2011,a loss can be claimed on his final return for his unrecovered cost of the annuity.
B)If Seth dies in 2011,his returns for the two previous years can be amended to allocate the entire cost of the annuity to the years in which he received payments and reported gross income.
C)If Seth is still alive at the end of 2010,he is not required to recognize any gross income because of his terminal illness.
D)If Seth is still alive in 2025,his recovery of capital for that year is $1,333.
E)None of the above.

Question

Quizplus · Accepted Answer

If Seth dies in 2011, a loss can be claimed on his final return for his unrecovered cost of the annuity. Since Seth died before his expected life expectancy, he was not able to recover the full cost of the annuity in the form of payments, and therefore any remaining unrecovered cost of the annuity can be claimed as a deduction on his final tax return.

Seth,a Calendar Year Taxpayer,purchased an Annuity for $20,000 in 2008