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Alex paid $90000 for a single life annuity. He will receive $7000 per year for 20...

Alex paid $90000 for a single life annuity. He will receive $7000 per year for 20 years, his life expectancy according to Treasury department. How much taxable income from the annuity must he report each year show and label calculations

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Answer #1

It should be noted that annuity mentioned in the above question is an example of immediate annuity wherein a portion of annuity which will be returned is treated as repayment of principal thus not taxable and another portion is treated as Return on investment and thus taxable.

In the above case

Repayment of principal and thus not taxable amount = $90000/20 = $4500

Return on investment portion and thus taxable iunt = $7000-$4500 = $2500.

Thus, each year Alex should report $2500 as taxable income from the annuity.

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