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I recently surrendered a life insurance policy. Since the cash I recieved exceeds the premiums paid on the account; I understand that I will have to report the difference as "ordinary" income. Where exactly (line # on Form 1040) would I report this amount? Will I have to fill out any other forms, schedules, ect.?

Thanks for you help.
Paul
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<< I recently surrendered a life insurance policy. Since the cash I recieved exceeds the premiums paid on the account; I understand that I will have to report the difference as "ordinary" income. Where exactly (line # on Form 1040) would I report this amount? >>

Schedule D.

TMF ExRO
Phil Marti
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Phil.... Why Schedule D? Why not line 21 on 1040? The gain will be ordinary income. (He'll get a 1099-Misc from the insurance company)
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<< Why Schedule D? Why not line 21 on 1040? The gain will be ordinary income. (He'll get a 1099-Misc from the insurance company)>>

Well, we're both wrong. I could swear I've seen these on a 1099-B, but maybe I'm just having one of my episodes.

According to Pub 17, it will be reported on a 1099-R and listed on line 16 of the 1040. Thanks for catching the error.

TMF ExRO
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Why wouldn't I use Schedule B? The surrendered proceeds constisted of 34% cash and 66% "dividend credits"

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<< Why wouldn't I use Schedule B? The surrendered proceeds constisted of 34% cash and 66% "dividend credits" >>

You don't use Schedule B because you don't. I'm glad you put "dividend credits" in quotes, because I don't have the slightest idea what that means either.

The difference between what you paid into the policy, including any taxable "distributions" that they added to the value while you had it (you would have received 1099's) is your taxable ordinary income gain. You can figure out what the amount of that gain is for planning purposes. I'd wait until next year to worry about how to report it.

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Coined answer from the IRS

Surrender of policy for cash: If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends or unrepaid loans that were not included in your income.

You should receive a Form 1099-R showing the total proceeds and the taxable part. Report these amounts on lines 16a and 16b of Form 1040, or on lines 11a and 11b of Form 1040A.

Paul

PS See message 32479 for original question




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