Is life insurance taxable if used to buy new policy

[kathye]

I was nearing the end of a life insurance policy and my agent suggested I roll the funds over into a new policy with later end ate, which I did.  I rolled all of the profits into a new policy and didn't get a dime.  Now I was sent a 1099 with over $20,000 of the taxable amount.  and according to Turbo tax I owe tax on this amount.  This seems wrong..  Is it??

[RichardG · Accepted solution]

It is possible to transfer the cash value in a life insurance policy to another policy tax-free.  I suggest speaking with your insurance agent to see if the process for a Section 1035 exchange was followed.  You may wish to review this article as well.  http://www.morningstar.com/advisor/t/75866242/know-the-rules-governing-tax-free-exchanges-of-insuran...

Otherwise, you have taxable income to the extent the proceeds from the policy exceed your investment in the policy.  

[kathye]

There had been loans against the policies that were wiped out in the transaction and $14,000 was transferred to the new policy to start it.  How does this affect 1035 eligibility