Mark a Calendar Year Taxpayer, Purchased an Annuity for $50,000

question 70

Multiple Choice

Mark a calendar year taxpayer, purchased an annuity for $50,000 in 2016. The annuity was to pay him $3,000 on the first day of each year, beginning in 2016, for the remainder of his life. Mark's life expectancy at the time he purchased the annuity was 20 years. In 2018 Mark developed a deadly disease, and doctors estimated that he would live for no more than 24 months.

• A) If Mark dies in 2019, a loss can be claimed on his final return for his unrecovered cost of the annuity.
• B) If Mark dies in 2019, his returns for the two previous years can be amended to allocate the entire cost of the annuity to the years in which he received payments and reported gross income.
• C) If Mark is still alive at the end of 2018, he is not required to recognize any gross income because of his terminal illness.
• D) If Mark is still alive in 2038, his recovery of capital for that year is $500.
• E) None of these.

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Definitions:

Dollar Terms

Financial transactions or economic measurements that are denominated in the U.S. dollar currency.

Opportunity Cost

Opportunity cost is the value of the next best alternative foregone as the result of making a decision, essentially what you give up to get something else.

Benefits

Various forms of value or advantages that individuals or organizations receive, which can include health insurance, pensions, or profits.

Costs

The expenditure required to produce, acquire, or maintain a product or service, including materials, labor, and overhead expenses.