topic Is cash for surrender of Long-term care policy taxable? in Get your taxes done using TurboTax

Is cash for surrender of Long-term care policy taxable?

10mmrk10 — Thu, 06 Jun 2019 14:29:28 GMT

Possibly ... any amount above the contributions made prob...

Critter — Thu, 06 Jun 2019 14:29:29 GMT

Possibly ... any amount above the contributions made probably are but ask the insurance company for the information that will be reported on the form 1099.

Re: Possibly ... any amount above the contributions made prob...

daz2016tax — Tue, 18 Aug 2020 00:36:35 GMT

So if I received a cash payment of less than my total premiums paid, no tax is due?

Do I have to report on my Federal tax return?

Re: Possibly ... any amount above the contributions made prob...

garbobdg71 — Tue, 06 Apr 2021 16:06:43 GMT

Are capital gains applicable to difference between premiums payed and buyout amount on long-term care insurance?

Re: Possibly ... any amount above the contributions made prob...

MarilynG1 — Thu, 08 Apr 2021 01:14:49 GMT

@garbobdg71 The difference between premiums paid and insurance cash-out amount could be reported in the 'Other Income' section, if you did not receive a 1099-INT or 1099-R to report the income.

Click this link for more info on Insurance Policy Cash Surrender.

Re: Possibly ... any amount above the contributions made prob...

4Estate4 — Mon, 20 Mar 2023 15:08:18 GMT

Thinking about surrendering Long Term Care Policy.

Cash payout : $99,300

Premium Paid: $32,751.50.

What is my tax exposure for this Insurance policy?

What will the 1099 Misc. look like ?

Re: Possibly ... any amount above the contributions made prob...

Cynthiad66 — Mon, 20 Mar 2023 15:55:56 GMT

You won't be taxed on the entire surrender value, though. You'll be taxed on the amount you received minus the policy basis, or the total premium payment you made on the policy. The difference between the total premiums paid and the total surrender value will be taxable income. You will receive a form 1099 from your handling agency which will provide guidelines on how to report the income.

This wil be reported as other income on your tax return.

The cash value generally grows tax-deferred. If you surrender the policy or access cash value through a policy loan, those distributions may be taxable and could reduce or eliminate coverage, including the policy's long-term care benefits.

taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income? capital gain?

OldMan2 — Fri, 26 Jan 2024 14:46:42 GMT

In 2023 I accepted my LTC carrier's offer of surrender of the policy for an amount in excess of the total of premiums paid. The only person I've been able to speak with at the carrier (a clerk) tells me that I will receive no 1099 because this is a "tax qualified plan." My research tells me that "tax qualified" refers to BENEFITS paid, not a cash surrender in excess of premium paid.

So I conclude that the amount received in excess of the premium paid is taxable. (Do you agree?) Can I treat this as a capital gain?

Thanks for your help.

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income? capital gain?

Mike9241 — Fri, 26 Jan 2024 17:39:04 GMT

You'll be taxed on the amount you received minus the policy basis, or the total premium payment you made on the policy. The difference between the total premiums paid and the total surrender value will be taxable income. You will receive a form 1099 from your handling agency which will provide guidelines on how to report the income.

It's ordinary income, not capital gain. while some states exempt retirement distributions, this probably won't qualify in those states.

Re: Possibly ... any amount above the contributions made prob...

newtoTT1 — Thu, 21 Mar 2024 16:47:17 GMT

My insurance co. will not be issuing a 1099 for the surrender policy. I need to fill one out myself which seems odd

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income? capital gain?

newtoTT1 — Thu, 21 Mar 2024 16:53:16 GMT

since the policy is tax qualified there will be no 1099 from my Insurance company.

How do I fill out the 1099? what amount do I use for the bock 1. The total surrender value or the total mine the premiums paid?

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income?...

DaveF1006 — Thu, 21 Mar 2024 17:03:22 GMT

You would enter the gain from the policy as taxable income. The gain is the amount of the surrender minus the premiums paid. Here is how to enter.

Log into your account
Select Wages and income>other income
Miscellaneous Income, 1099-A, 1099>start
Scroll to the bottom of the page to Other Reportable Income
Other taxable income, answer yes
Then give a brief description of the income and the amount listed.
You would list this as "Gain From Surrender of a Life Insurance policy" and then the amount of interest paid (gain) over and above your premiums paid.

Re: Is cash for surrender of Long-term care policy taxable?

newtoTT1 — Thu, 21 Mar 2024 17:08:08 GMT

Found this on the web. Is it saying there is no tax on this surrender value?

LTC NEWS has designed this guide on the tax advantages of Long-Term Care Insurance. Generally, no. Tax-qualified Long-Term Care Insurance benefits come to you tax-free. Insurance companies that pay long-term care insurance benefits are required by the Internal Revenue Service (IRS) to provide claimants with a 1099 LTC.
thanks for you assistance

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income?...

Waddie01 — Fri, 22 Mar 2024 22:06:27 GMT

If the gain is negative (i.e.) a loss than you take it as a long term loss. In my case the loss was ~-$20K and my wife had a $2K gain. Thanks for helping me input this into TT. The insurance company sent us a 1099-MISC which I'm sure will complicate things with the IRS. Any advice on that?

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income?...

LindaS5247 — Wed, 27 Mar 2024 16:36:26 GMT

@Waddie01 Please clarify your question by adding some additional information so we can provide a more helpful answer. Did you receive a Form 1099-LTC and a 1099-MISC or just a 1099-MISC? What information was on your Form 1099-MISC? What box is the income in? What type of policy did you have?

Please feel free to come back to TurboTax Community with additional information or questions or click here for help in contacting Turbo Tax Support.

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income?...

Waddie01 — Wed, 27 Mar 2024 19:47:13 GMT

I received the proceeds from the cash out on a 1099-MISC form only. Before we cashed out, we asked for an accounting of our payments for both policies so we knew how much we paid into it and over the 23 years we had the polices. We contacted the insurance company about a receiving a 1099-B form and they refused to hear of it. They were pretty obnoxious!

The only line in the 1099-MISC form that had a number on it was line 3, Other Income. The rest of the info was our name and the payer info.

I hope this helps you.

As I stated, I lost ~$20K and my wife gained ~$2K.

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income?...

SusanY1 — Wed, 27 Mar 2024 19:52:01 GMT

Premiums paid for insurance don't make up a loss for tax purposes. Your accounting includes the cost of the insurance, which isn't a capital or other loss, it's just the expense of having had the insurance.

Gains on insurance contracts are ordinary income, so the reporting on Line 3, Other Income is correct for an insurance cash out.
@Waddie01

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income?...

Waddie01 — Thu, 28 Mar 2024 22:28:35 GMT

Our 1099 MISC forms listed the refund amount (other income) on Line 3. The policy was an LTC policy with a cash out clause. We received no benefits in the 23 years we held the policy and they raised the rates so it was no longer affordable. They offered to cash us out. We asked for our payment data and the insurance company provided that info. We asked them to provide us with a 1099B form and they adamantly refused.

I lost approximately $20K ( male risk pool?) and my wife gained about #2K.

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income?...

DaveF1006 — Thu, 28 Mar 2024 23:08:25 GMT

This is considered an ordinary loss or gain so your insurance company is correct in not issuing a 1099B. This is because this is not considered a capital gain or loss for tax reporting purposes.

@Waddie01

Re: taxable income upon surrender of LTC policy for $ in excess of premium paid: ordinary income?...

Waddie01 — Fri, 29 Mar 2024 03:51:47 GMT

Are you saying the loss is not a deduction? How do I report the cash out since it's not taxable. Is there an IRS form for this ?