Fifteen years ago, Mr. Fairhold paid $65,000 for a single-premium annuity contract. This year, he began receiving a $1,200 monthly payment that will continue for his life. On the basis of his age, he can expect to receive $405,600. Assume that on January 1, 2025, Mr. Fairholds unrecovered investment in the annuity is $1,800.

Required:

1. How much of his total 2025 annuity payments ($14,400) are taxable?
2. Assume that he dies in February after receiving only one $1,200 payment. What are the tax consequences on his final Form 1040?