Seymore named his wife, Penelope, the beneficiary of a $100,000 insurance policy on his life. The policy provided that, upon his death, the proceeds would be paid at a rate of $4,000 per year plus interest over a 25-year period. Seymore died June 25, 2013, and in 2014 Penelope received a payment of $5,200 from the insurance company. What amount should she include in her gross income for 2014?

Question

Quizplus · Accepted Answer

Penelope should include $1,200 in her gross income for 2014. ($4,000 x 6 months = $2,000 for the first year, plus the $5,200 payment received, minus the $4,000 exclusion for the first year = $3,200. Then divide by 2 to account for only 6 months of payments received in 2014, resulting in $1,600 taxable income for 2014.)

Seymore Named His Wife, Penelope, the Beneficiary of a $100,000