A 64-year-old taxpayer retires this year and receives the first payment on an annuity that was purchased

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A 64-year-old taxpayer retires this year and receives the first payment on an annuity that was purchased several years ago. The taxpayer’s investment in the annuity is $97,500, and the annuity pays $1,000 per month for the remainder of the taxpayer’s life. Based on IRS mortality tables, the taxpayer is expected to live another 20 years. If the taxpayer receives $4,000 in annuity payments in the current year, the nontaxable portion calculated using the simplified method is:

a. $0

b. $1,500

c. $1,400

d. $4,000

e. None of the above

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Income Tax Fundamentals 2019

ISBN: 9781337703062

37th Edition

Authors: Gerald E. Whittenburg, Steven Gill

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