Question

Sam and Ann Hoyt filed a joint federal income tax return for the calendar year 2019. Among the Hoyts’ cash receipts during 2019 was the following: $6,000 first installment on a $75,000 life insurance policy payable to Ann in annual installments of $6,000 each over a 15-year period, as beneficiary of the policy on her uncle, who died in 2018. What portion of the $6,000 installment on the life insurance policy is excludable from 2019 gross income in arriving at the Hoyts’ adjusted gross income?

A. $6,000
B. $1,000
C. $0
D. $5,000

Answer 1

The correct option is (A)

Step-by-step explanation:

In case of life insurance proceeds, the entire amount is excluded from gross income. Any interest earned on such proceeds are taxable though.

In this case, Hoyt's cash receipts for 2019 included $6000 as first installment of life insurance proceeds as she is the beneficiary of her uncle's policy who died in 2018. The entire installment of $6,000 is excluded from Hoyte's gross income in arriving at her AGI (adjusted gross income). This amount is included in the estate of the deceased.