My Mother has a 1099-R for 2020 from a fixed annuity retirement savings. The distribution code is 7D which is normal distribution/annuity payments from non qualified annuities that may be subject to tax under section 1411. It's asking for basis of retirement income. Is this the gross distribution amount box 1 from 1099-R?
Thank you,
CPOSharky,
No, that is not the figure that TurboTax is looking for here. And, unfortunately, the correct amount is subject to some rules which too many retirees are unaware of to their cost.
The original "basis" of an annuity is the amount of after-tax money used to fund the annuity. This is often reported in Box 5 of the 1099-R form and, if it is there, that is what TurboTax is looking for.
Each payment from the annuity contains of a specific portion of that original basis calculated according the rules in IRS Publication 575 (www.irs.gov/pub/irs-pdf/p575.pdf) plus untaxed income. This already-taxed portion of the payment is subtracted from the distribution to come up with the taxable amount. In addition, the basis of the annuity is also updated each year by subtracting out that already-taxed portion.
This is where too many folks whom we see during AARP tax season have lost the benefit of that already-taxed portion because they never knew about the rules. It is a use-it-or-lose-it benefit.
If your mother had a basis in the annuity and had not claimed the already-taxed portion of the basis in prior years, you can amend the last three returns to claim the reduced income and get a refund. You cannot go any further back than 3 years and may only be able to go back 2 years, depending upon when the return was filed.