1099-R Distribution for an Insurance policy we never knew about.

[davescfg]

I'm not sure how to ask this distribution question so hopefully this is understandable.

I called the insurance company regarding this 1099-R form we received to gather more information since my wife and I never knew about this policy and assumed this was a mistake. Apparently, her father took out an insurance policy through the military back in 1956 on his daughter (my wife), which has been in affect all this time. When payments stopped (I assume this is when he retired from the military in 1971 or when he died in March 1991), the cash value of the policy took over paying the premiums until the cash value ran out in June of 2022. 

Wouldn't he be responsible for the gross distribution of the policy if he was still alive?

Why is she responsible for something her dad initiated?

[PatriciaV]

As the beneficiary of the life insurance policy, your spouse inherited the cash value from her father. The taxable amount, if any, is the amount she received that is more than the premiums that were paid over the years.  If you don't know the total premiums, contact the life insurance company for this information. In most cases, the cash distribution is far less than the premiums paid, which results in no taxable gain.

[davescfg]

When I find out the total premiums paid it sounds as though I can write off those premiums, but where would I put this information on our taxes so we would not have a taxable gain? Life Insurance premiums are not tax deductible?

[DaveF1006 · Accepted solution]

Yes, you can list the premium paid in Box 5 of the 1099R and deduct that from Box 1.  The remaining amount will be  reported by you in Box 2A as the taxable amount as this is the taxable earnings/interest that needs to be reported as income. 

Turbo Tax does not do a good job of identifying you as a beneficiary of a life insurance settlement from a 1099R. If ever examined, use this IRS link as a reference as well as the advice i have given you. Keep a transcript of this conversation and include this in your tax return paperwork.

@davescfg