Question

Iris collected $150,000 on her deceased husband's life insurance policy. The policy was purchased by the husband's employer under a group policy. Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer. She elected to collect the policy in 10 equal annual payments of $18,000 each.a. None of the payments must be included in Iris's gross income.b. The amount she receives in the first year is a nontaxable return of capital.c. For each $18,000 payment that Iris receives, she can exclude $500 ($5,000/$180,000 × $18,000) from gross income.d. For each $18,000 payment that Iris receives, she can exclude $15,000 ($150,000/$180,000 × $18,000) from gross income.e. None of these.

Answer 1

Answer:

d. For each $18,000 payment that Iris receives, she can exclude $15,000 ($150,000/$180,000 × $18,000) from gross income.

Explanation:

The life insurance proceeds of $150.000 are excluded from Iri's gross income. The income proportion of each annuity payment is $3.000 (18.000 - 15.000 recovery of capital). Which will be included in gross income.

The recovery of capital of each annuity payment is $15.000 [(150.000/180.000]. Which will be excluded.