Can capital losses from the sale of stock be used to offset capital gains realized on the surrender of a whole life policy?

Forum|Forum|3 years ago
March 10, 2023
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Surrendered whole life policy for cash value, approximately $20k of which was taxable gains. I sold stock at a loss for almost this same amount but TurboTax is only allowing me to use $3k of the loss against Ordinary Income. I had understood I could use the whole stock loss against the life insurance gains?

TurboTax Deluxe Online

Vanessa A

No, you cannot use the loss on stock sales to directly offset the sale of your whole life policy. Rev. Rul. 2009-13 states "The surrender of a life insurance contract does not, however, produce a capital gain. See, e.g., Rev. Rul. 64-51, 1964-1 C.B. 322". This means the sale of your whole life policy is treated as ordinary income.

A capital loss will offset capital gains but can only be used to offset $3,000 of ordinary income. TurboTax is properly limiting your deduction to $3,000.

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