My $10,000 life policy in Canada became paid up in 2021. I received a pure endowment payment of $3,110. From this payment 50% Canadian tax was deducted of $1,555.
I have always claimed the income from this insurance as arms length interest payments on my taxes.
My premiums over the years totaled $7,717.50
How do I claim the endowment on my 2021 taxes or do I claim it because I have paid tax on the interest over the years.
According to IRS publication 554, Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. In this case, your premiums of $7717.50 exceeded the payout amount of $3110 so this is not taxable income to you.
Since this is not taxable income, you cannot claim a foreign tax credit for the income taxes you paid to Canada on this endowment.
According to IRS publication 554, Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. In this case, your premiums of $7717.50 exceeded the payout amount of $3110 so this is not taxable income to you.
Since this is not taxable income, you cannot claim a foreign tax credit for the income taxes you paid to Canada on this endowment.