Question

Taxes on insurance policy sale.

Forum|Forum|3 years ago
March 15, 2023
1 reply
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My mother had a life insurance policy on a son. She passed away and we cashed out the policy. The insurance company sent a 1099-R on the gain in value on the entire life of the policy and not on the date of mother's death (policy owner) and the sale. How do I determine the cost basis, when the policy was sold 16 months later?

T

ThomasM125

The Form 1099-R should state the taxable amount of the distribution, if any, in box 2(a). It would be the proceeds minus the premiums paid, typically. I'm not sure why you received a form 1099-R if you cashed in a life insurance policy, however, as it would not normally be taxable. Perhaps it was an annuity, not a life insurance policy? In answer to your question, the cost basis would basically be the premiums your mother paid in to the policy, which the insurance company could probably provide you with.

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