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Life Insurance

I had premium coming out for 2 Life Insurance policies pre-tax.  I surrendered them both for their cash value due to job loss and needed the money.  Taxes were not taken out at time of surrender.  Do I need to report this?  If so, how?

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8 Replies
MinhT1
Employee Tax Expert

Life Insurance

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

 

Please read this TurboTax Help article for more information.

 

If there are earnings to be reported, this is how you enter them in TurboTax.

 

  1. In TurboTax, open your tax return
  2. Click on Federal in the left-hand column, then on Wages & Income
  3. Locate the section Investments and Savings and click on the arrow on the right
  4. Click Start next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
  5. Answer Yes to the question: Did you sell any investments?
  6. Answer No to the question: Did you receive a form 1099-B or brokerage statement?
  7. Select Other from the list of investments.
  8. Follow the TurboTax interview to enter your information. 
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Life Insurance

If the earnings were below the amount invested, can I count that as a loss?  If so, how?

JulieS
Expert Alumni

Life Insurance

No, if your original investment was made through pretax deductions, you can't claim to have a basis in the policy. 

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Life Insurance

JulieS,

Are you saying the opposite of MinhT stated or are you answering the loss question?

JulieS
Expert Alumni

Life Insurance

No, I was answering the loss question. 

 

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Life Insurance

10k in premium

7k in cash value received


Sounds like there’s nothing for me to enter in then.  Do you agree?

MinhT1
Employee Tax Expert

Life Insurance

You are correct.

 

And the loss isn't tax deductible.

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Gasboy
New Member

Life Insurance

I don't think that you should file it under other 1099-B because that might allow you to count the distribution as a long term gain. The IRS instructions for form 1099-R (Instructions for Forms 1099-R and 5498 (2024) | Internal Revenue Service (irs.gov)) say tha you should report surrenders where the payment is greater than the premiums paid on 1099-R.

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