Refer to the facts in the preceding problem. Assume that on January 1, 2025, Mr. Fairhold's unrecovered

Question:

Refer to the facts in the preceding problem. Assume that on January 1, 2025, Mr. Fairhold's unrecovered investment in the annuity is
$1,875.

a. How much of his total 2025 annuity payments ($15,600) are taxable?

b. Assume that he dies in February after receiving only one $1,300 payment. What are the tax consequences on his final Form 1040?

Assume the taxable year is 2018.

Data from Prob. 14

Fifteen years ago, Mr. Fairhold paid $50,000 for a single-premium annuity contract. This year, he began receiving a $1,300 monthly payment that will continue for his life. On the basis of his age, he can expect to receive $312,000. How much of each monthly payment is taxable income to Mr. Fairhold?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...

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