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Additional citation and information

Section 13521(a) of the TCJA allows the seller of a policy to include all premiums paid in cost basis when calculating taxes due on a settlement transaction. It provides a "clarification of tax basis of life insurance contracts" (codified at Sec. 1016(a)(1)(B)) stating that when determining the basis of property, no adjustment is made "for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract."

Thus, sellers of life insurance are now afforded the same tax treatment as those who surrender their policy. Policy owners are now therefore more likely to sell an unwanted policy to a third party rather than simply surrendering or canceling the coverage. 

For provenance of citation, go here:

https://www.congress.gov/115/plaws/publ97/PLAW-115publ97.htm

SEC. 13521. CLARIFICATION OF TAX BASIS OF LIFE INSURANCE CONTRACTS. (a) Clarification With Respect to Adjustments.--Paragraph (1) of section 1016(a) is amended by striking subparagraph (A) and all that follows and inserting the following: ``(A) for-- ``(i) taxes or other carrying charges described in section 266; or ``(ii) expenditures described in section 173 (relating to circulation expenditures), for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or ``(B) for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract;''. (b) <<NOTE: 26 USC 1016 note.>> Effective Date.--The amendment made by this section shall apply to transactions entered into after August 25, 2009.