In 1991, Barbara purchased a single life annuity for $250,000 that wou

QUESTION

In 1991, Barbara purchased a single life annuity for $250,000 that would pay her $25,000 per year for life beginning in 2002. Barbaras life expectancy from 2002 forward on which the payments were based is 25 years.a. How much would Barbara include in income if she is still receiving payments in 2020?b. If Barbara dies in 2010 after receiving that years payment, what is the investment portion remaining? How is the unrecovered investment treated for tax purposes?
Year Cash Flows 0 -250,000.00 2002 25,000.00 2003 25,000.00 2004 25,000.00 2005 25,000.00 2006 25,000.00 2007 25,000.00 2008 25,000.00 2009 25,000.00 2010 25,000.00 2011 25,000.00 2012 25,000.00 2013 25,000.00 2014 25,000.00 2015 25,000.00 2016 25,000.00 2017 25,000.00 2018 25,000.00 2019 25,000.00 2020 25,000.00 2021 25,000.00 2022 25,000.00 2023 25,000.00 2024 25,000.00 2025 25,000.00 2026 25,000.00 Barbara would receive USD 625000 in 25 years A. if she is still receiving payments in 2020, she would include USD 525000 in her income B.If Barbara dies in 2010 after receiving that¦

39;s payment,investment portion remaining would be USD 400,000 C. As per Internal Revenue Service (USD) Publication 939 :As the annuity startingdate isafter July 1, 1986, any unrecovered net cost at Barbara(or last annuitants) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. This deduction is not subject to the 2%-of-adjusted-gross-income limit.

ANSWER:

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