Life Insurance Income Taxable
Is my life insurance taxable?
Last year I cashed in a small life ins. policy that my mom started for me 44 years ago. It was less than $3000 and all premiums were paid long ago. The statemtn I received from the ins. co. says that it “may or may not be taxable” as gross income. Any insights?
An accountant is a better source for this. The question goes beyond the garden variety “I cashed in my life policy. How much is taxable.”
It sounds like your mom made all the premium contributions, and you made none. So what is her cost basis? Would you be taxed on the amount beyond the cost basis as income as if you made the premiums?
Would the policy constitute a gift? Is it a gift in 2007 when you realized the surrender value or back when she actually gave it to you, and did she make any other gifts to you in that year? If it is a gift, then the value of the gift is the interpolated value (whole life) or gross cash value (universal life), not the cash surrender value. These values may or may not be the same.
If you want to be on the up and up, ask an accountant. If you don’t really care, take a guess and hope you have a defensible position.
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