Don is the beneficiary of a $50,000 insurance policy on the life of his mother, Anna. To date, Anna paid premiums of $16,000. What amount of gross income must be reported in each of the following cases?
a. Anna elects to cancel the policy and receives $20,000, the cash surrender value of the policy.
b. Anna dies and Don receives the face amount of the policy, $50,000.
c. Anna dies and Don elects to receive $15,000 per year for four years.
A. Anna would have to report the $20,000. Any interest you receive would be taxable and would need to be reported just like any other interest received because the cash surrender value is more than ...
This solution describes life insurance proceeds for three scenarios and what the tax ramifications may be.