Question

Ray has a limited-payment life policy with a face value of $250,000. The cash surrender value (CSV), of the policy is $62,100, and Ray has paid $49,700 in premiums. The NCPI is $28,900. If Ray took a $50,000 loan, how much of the loan must he declare as income when he files his income tax (the loan was not repaid in the year it was taken)?

Answer 1

To determine how much of the loan Ray must declare as income when he files his income tax, we need to consider the tax implications of the loan.

First, let's calculate the policy gain. The policy gain is the difference between the cash surrender value (CSV) and the net cash premium investment (NCPI).

Policy gain = CSV - NCPI

Policy gain = $62,100 - $28,900

Policy gain = $33,200

Since Ray took a $50,000 loan, the loan amount is higher than the policy gain. Therefore, Ray must declare the entire loan amount as income when he files his income tax.

In conclusion, Ray must declare the full $50,000 loan amount as income when he files his income tax.

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