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Ocelot35
New Member

Unrecovered Cost Basis of Annuity

I am the personal representative of the beneficiary of an IRA.  I received a1099-R and a 1099-INT.  However, I also received a notification that says:    "There's an unrecovered cost basis remaining after paying the claim.  Cost basis is the premium paid to the annuity that has already been taxed.  While this isn't money due to you, it may be deductible on your income tax return. "

 

Since the beneficiary is an estate itself this possible deduction would be entered on a 1041.  How do I know if it's deductible and if so where would I enter it?

 

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1 Reply
JamesG1
Expert Alumni

Unrecovered Cost Basis of Annuity

The ordinary income portion of a form 1099-R distribution would be reported as other income on a Federal 1041 tax return.

 

In TurboTax Business, enter '1099-R' in the SEARCH magnifying glass in the upper right hand corner of the screen.

Click on 'jump to form 1099-r'

 

The taxable portion of an annuity distribution is likely computed under the General Rule.  IRS Publication 939 states:

 

What is the General Rule? 

 

The General Rule is one of the two methods used to figure the tax-free part of each annuity payment based on the ratio of your investment in the contract to the total expected return. The other method is the Simplified Method, which is discussed in Pub. 575, Pension and Annuity Income. 

 

Who must use the General Rule. 

 

Use this publication if you receive pension or annuity payments from: 

 

1. A nonqualified plan (such as, a private annuity, a purchased commercial annuity, or a nonqualified employee plan); or 

2. A qualified plan if

     a. Your annuity starting date is before November 19, 1996 (and after July 1, 1986), and you don't qualify to use, or didn't choose to use, the Simplified Method; or 

     b. Your annuity starting date is after November 18, 1996, and as of that date you are age 75 or over and the annuity payments are guaranteed for at least 5 years.

 

The Simplified method is explained in IRS Publication 575.

 

@Ocelot35 

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