Final answer:
The taxable amount of a life insurance death benefit would be calculated by subtracting the sum of the purchase price and any subsequent premiums paid by the new owner from the total death benefit. For a life insurance policy purchased for $50,000 and with $10,000 in premiums paid, $440,000 of a $500,000 death benefit would be taxable.
Step-by-step explanation:
The question appears to be related to the taxation of life insurance benefits and the premiums paid for a life insurance policy that was purchased as a viatical settlement, or later-stage life settlement. To determine the amount of the death benefit that is taxable, we must consider how much was paid to purchase the policy, the amount paid in premiums thereafter, and the total death benefit amount.
When a life insurance policy is sold, the original price is typically not taxable to the new owner. However, any amount that is received upon the death of the insured that exceeds what the new owner paid in premiums plus the purchase price of the policy, is considered taxable income. So, if the policy is sold for $50,000 and the new owner pays an additional $10,000 in premiums, the non-taxable portion would be the sum of these two amounts, which is $60,000. The taxable amount, therefore, is calculated by subtracting this non-taxable portion from the total death benefit, which is $500,000. The taxable amount in this case would be $500,000 minus $60,000, totaling $440,000.
This calculation does not take into consideration any other potential tax laws or thresholds that could further affect the taxable amount, and it would be recommended to consult with a tax professional for a more personalized and accurate assessment.