1. Life insurance. Abigail took out a life insurance policy that would pay $220,000 if her husband John were to die. Abigail paid total premiums of $93,000 over a number of years. A few years ago, Abigail sold the policy to her brother William for $87,000. Subsequently, William paid total premiums of $63,000. This year, George died and William collected the $220,000 proceeds. How much gross income must William recognize?

2. Annuity. Emilia purchased an annuity for $8,000 that will pay $1,000 each year for the rest of her life. According to IRS tables, she is expected to live 10 years. Assume she only lived for 4 years (and died on January 1 of the next year). She received the $1,000 payments and recognized the correct amount of income for each of the 4 years of her life. How much is the itemized deduction she can claim on her final return?