Received a 1099 misc for other income. I am not in any business.This was for the sell of a life insurance policy. The taxable portion has not been determine.I need to know how to file.
Check the form number again; Sounds like you're describing a 1099-R
That taxable amount not determined sounds like a 1099R to me also, a 1099MISC doesn't have anything like that on it.
@srhipps @Rainman12 @Lisa995 Presumably you received a Form 1099-MISC and will, if not yet, receive a Form 1099-B, but even if the payer (insurance company or third-party) fails to supply one, you must report the long-term capital gain obtained. See example.
Thanks, you have been very helpful,but the amount in box 3 is the entire purchase price. Is it possible the purchasers do not know what they're doing.
Very likely
The problem it creates for you is that in all likelihood your marginal (ordinary) income tax rate is higher than your capital gains rate, which actually might be as low as zero.
Have to speak to someone and explain the change - cite the information I provided in second answer with Public Law section.
Additional citation and information
Section 13521(a) of the TCJA allows the seller of a policy to include all premiums paid in cost basis when calculating taxes due on a settlement transaction. It provides a "clarification of tax basis of life insurance contracts" (codified at Sec. 1016(a)(1)(B)) stating that when determining the basis of property, no adjustment is made "for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract."
Thus, sellers of life insurance are now afforded the same tax treatment as those who surrender their policy. Policy owners are now therefore more likely to sell an unwanted policy to a third party rather than simply surrendering or canceling the coverage.
For provenance of citation, go here:
https://www.congress.gov/115/plaws/publ97/PLAW-115publ97.htm
The surrendering of an existing in-force life insurance policy back to the underwriting company or the sale of that same policy to a third-party, typically an investor who will hold the policy for the purposes of obtaining ultimately the death benefit, are taxable events. Since you chose the second approach to obtain value that had built up in your policy, this answer only covers that second alternative which is technically called a Life Settlement.
Before going further, @srhipps or any other reader, please be advised that the Tax Cuts and Jobs Act of 2017, overrode the previous guidance on the taxation of life settlements under IRS Revenue Ruling 2009-13.) That is to say, anything you might have understood about the Cost Basis calculation used in either a surrender or a life settlement done prior to 2017 is no longer valid.
The sale of a life insurance policy is a taxable event and the characterization of gains is determined under the guidelines set out in IRS Revenue Ruling 2009-13 by the Tax Cuts and Jobs Act (TCJA) of 2017.
The sale or surrendering of an in-force life insurance policy creates a tax liability because, from the IRS perspective, the policy has a calculable cost (the "Cost Basis"), as if it were an investment, and has obviously a sale value shown by the proceeds that you receive.
NOTE: "Term Life" policies do not build up a cash value so this question and answer is not relevant to term life policies.
Here is an example to illustrate the effect of taxation of a sale of an in-force policy that has built up cash value:
Now, since TCJA (2017) the determination of what is taxable and at what rate becomes more complex.Prior to TCJA (2017), the cost basis as determined in IRS Ruling 2009-13 would have been the premiums paid reduced by the insurance company’s record of the internal cost-of-insurance charges - as an example $10,000 so the calculation would have then been ($58,000 – $10,000 = $48,000).
However, TCJA repealed this interpretation, and instead the cost basis is simply the total premiums paid ($58,000).
Tax liability calculation: Proceeds of Sale less Cost Basis = $75,000 minus $58,000 = $17,000 taxable
- Cash surrender value of $66,000 less Total premiums paid of $58,000 = $8,000
Hope this helps to clear up any question.
I contacted all the parties involved in this sale. They all said that I'd received all the paper work that I'm going to get and that I should report this income on form 8949 - page 2 - part 2 - box F - and fill in the information below. I don't see how I can connect this back to a 1099 misc., but this is what I was told to do. I'm not sure Turbo Tax knows what to do with it.
In fact, you cannot connect a Form 1099-MISC back to the sale which if correctly repoted would be on 1099-B. The implications to you are very consequential because the sale legally has generated a capital gain to be taxed at c/g rates which could be as low as zero, or 15% or 20% (max); whereas the ordinary income could be 10%-12-24-or higher %.
The seller has been incompetent in providing the filing. I'm not sure what you can do about it, except to research if there are other clients also so effected. There is no logic to the payment being a 1099-MISC Box 3 except that they had no idea what they should have done..
Thanks, I guess I just will not report it and and wait for an audit. Maybe they will explain it to me then,since no one there will talk to you on the phone.
Can you calculate what would be the appropriate capital gain and make an estimated payment to have on-account?
Since the total amount paid in premiums was higher than the sale price I figure there no tax owed.
a reportable capital loss then - as opposed to taxable ordinary income on the 1099-misc
The buyer of the policy only reported what they paid to my wife on the 1099 misc.
I have a question about this. What if the person selling their policy is terminally ill with life expectancy of 24 months or less? I was told if you do a life settlement or sometimes called a viatical settlement then the amount the policy sells for is NOT taxable.
It is possible that the viatical settlement is not taxable if you qualify. Per the IRS:
Accelerated Death Benefits
Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are excluded from income if the insured is terminally or chronically ill.
Viatical settlement.
This is the sale or assignment of any part of the death benefit under a life insurance contract to a viatical settlement provider. A viatical settlement provider is a person who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill and who meets the requirements of section 101(g)(2)(B) of the Internal Revenue Code.
Exclusion for terminal illness.
Accelerated death benefits are fully excludable if the insured is a terminally ill individual. This is a person who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification.
Exclusion for chronic illness.
If the insured is a chronically ill individual who isn't terminally ill, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Accelerated death benefits paid on a per diem or other periodic basis are excludable up to a limit. For 2019, this limit is $370. It applies to the total of the accelerated death benefits and any periodic payments received from long-term care insurance contracts. For information on the limit and the definitions of chronically ill individual, qualified long-term care services, and long-term care insurance contracts, see Long-Term Care Insurance Contracts under Sickness and Injury Benefits, earlier.
Exception.
The exclusion doesn't apply to any amount paid to a person (other than the insured) who has an insurable interest in the life of the insured because the insured:
Is a director, officer, or employee of the person; or
Has a financial interest in the person's business.
Form 8853.
To claim an exclusion for accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853 with your return. You don't have to file Form 8853 to exclude accelerated death benefits paid on the basis of actual expenses incurred.
Hello:
I sold a policy last year for $100,000. I held it over 10 years. The total premiums I paid were $137,000.
I received a 1099 LS for $100,000. But the Life Insurance Company will not send a 1099 with the premiums paid.
I think I can still put it on Form 8949 and have a $37,000 capital loss carryover?
No. A personal life insurance policy is personal property and a loss on the sale of personal property is not deductible.
Hello Scruffy:
If you have a loss from the sale of Life Insurance, can you take a capital loss?
Sold LI Policy. Received 1099 for sale price. $80,000
Premiums paid over 14 years: $106,000
Capital loss $26,000?
No, the loss is not deductible. A life insurance policy is considered a personal asset and as such the loss on sale of it is not deductible. It's not an investment since you use it for personal purposes, in that it provides insurance coverage while you own it.