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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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.
If the earnings were below the amount invested, can I count that as a loss? If so, how?
No, if your original investment was made through pretax deductions, you can't claim to have a basis in the policy.
JulieS,
Are you saying the opposite of MinhT stated or are you answering the loss question?
No, I was answering the loss question.
10k in premium
7k in cash value received
Sounds like there’s nothing for me to enter in then. Do you agree?
You are correct.
And the loss isn't tax deductible.
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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