Last year, Gandalf purchased an annuity for $162,000. The annuity is to pay Gandalf $10,000 per year for life after he reaches age 65. Gandalf turned 65 in 2019, at which time his life expectancy was 20 years.

1) What is the exclusion ratio? %

2) How should Gandalf treat the $10,000 payment he receives in 2019?

3) Shortly after receiving his payment for the year 2020, Gandalf dies in an automobile accident. How does the executor of Gandalfs estate account for his unrecovered cost in the annuity on his return for the year 2020?

4) Assume that the accident does not occur until 2041. How does the executor of Gandalfs estate account for the $10,000 annuity payment on his 2041 individual income tax return?