Question

Van is sick and tired of his job. His doctor certifies that his health may be compromised if he continues to work at his current job. He sells his life insurance policy to Life Settlements, Inc. for $50,000 so he can take a break from work. He has paid $10,000 so far for the policy. How much of the $50,000 must Van include in his taxable income

Answer 1

$40,000

Step-by-step explanation:

Based on the information given How much of the amount of $50,000 that Van must include in his taxable income will be $40,000 ($50,000-$10,000). The reason why he must pay tax on the amount of $40,000 gain ($50,000-$10,000) on the sale of the policy is that all the necessary requirements for the death benefit has not been meant by Van.

Therefore Van must include in his taxable income the amount of $40,000.