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George purchased a life annuity for $5,200 that will provide him $80 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $80 payment will George exclude from his gross income?

User Eddiem
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1 Answer

4 votes

Answer:

$28

Explanation:.

Calculation for How much of the first $80 payment will George exclude from his gross income

First step is to calculate the return of capital per payment by using the annuity exclusion ratio

Annuity exclusion ratio =($5,200/($80*100))

Annuity exclusion ratio =($5,200/$8,000)

Annuity exclusion ratio = 65%

Therefore the return of capital per payment is be 65%

Now let calculate How much of the first $80 payment will George exclude from his gross income

Gross income exclusion=$80- (65%*$80)

Gross income exclusion=$80-$52

Gross income exclusion=$28

Therefore $28 of the $80 monthly payment will be excluded in the gross income

User Greg Prosch
by
7.8k points
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