Please answer the following questions
(a)-The full $1 million excluded, but any interest earned is
included.
-§104(a)(2) excludes the $1 million; excluded no matter the amount
(no ceiling).
-Any interest you get is included as straight interest, nothing
magical for interest earned on an amount that is otherwise not
taxed. Same thing if this was inheritance.
(b) See §72
-The taxpayer receives $1 million, its excluded.
-Taxpayer then turns around and purchases annuity so that $1
million is the investment in the contract so we have our investment
overt the expected return ($1million/$2million) .
-Remember that expected return is life expectancy x annual payout
.
-The $1 million then becomes the taxpayers §1012 basis in the
annuity contract.
-Anything above that is deemed interest and is taxable.
-Any interest payments above the prorated $1million is
taxable.
(c)-Doesn’t matter if its damages or a settlement, full amount $1
million, excluded.
-This is just compensation for the physical injuries
sustained.
-Entire amount excluded under
§104(a)(2).
-Revenue ruling 79-313:if you have a payout that is otherwise
excluded, if you invest it, you pay on the interest.
_However, If the payout is an annuity, even though ordinarily a
portion would be interest, the entire thing is excluded.
_If wrongdoer pays out over time, rather than lump sum, entire
amount is excluded.
_But if you take the lump sum and turn around and buy an annuity on
your own terms, that amount is taxable.
Please answer the following questions the the succeeding year Spouse wall but fortunately they medical insurance...
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