How do I determine taxable amount of a surrendered life Insurance policy with a loan?

[GC_Anthony]

I received a 1099-R for a distribution from a whole life insurance plan I surrendered.  Gross Distribution amount is entered in box 1. Box 2b - Taxable amount not determined -  is checked.  During the time the plan was in force, I made 9 annual premium payments. Balance of the premiums were paid internally resulting in an insurance loan against the cash value of the plan.  Gross distribution = the Cash Value of plan.  Actual distribution = Cash Value minus Loan amount. I calculated the taxable amount of the distribution as Cash Value minus the 9 annual premium payments made with after-tax dollars.  Is that correct, or does the internal premium payments and existence of the loan further complicate the calculation?

[MonikaK1]

It depends. Life insurance policies that are cashed out (surrendered) aren't taxable up to the amount of the premiums paid and other contributions. Earnings on the policy above and beyond the amount invested are taxable.

If you have determined the amount of premiums you actually paid to be the nine annual payments, then yes, that should be your correct basis in the policy and the excess is taxable.

You can also use this tool on the IRS website to help you calculate the taxable amount.