I have a customer that has several rental props. because of this he has had to increase his life insurance. The increase has caused the premiums to be $1000 per quarter. He is wanting to write off a percentage of it for the rental props as insurance deduction. I really can't find anything on this or I am over looking it. Has anyone ever heard of this being allowed as a deduction? I haven't.
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Life Insurance
Life insurance is not deductible.
Proceeds on his death are tax free.Jiggers, EA -
Thanks so much. I did not think it was but I always like to double check.Comment
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Life Insurance Costs
If a company owns the policy, pays the insurance premium on an individual (such as a key-employee), and the company is the beneficiary, I believe the premiums are deductible but the life-insurance proceeds in that instance would be taxable.
According to the IRS website "You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. See Regulations section 1.264-1 for more information."
The underlying question becomes "who is the owner of the policy" and "who is the beneficiary of the policy?"
MoComment
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why would you need to up your life insurance because of rentals? an umbrella policy maybe, but life ins? Not deductible.Comment
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Insurance
Probably owes a lot of money bank wants to be protected in case of his death.Property may be under water.Comment
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He has over 15 rental props. and so he had to increase his/wife life insurance to cover the mortgages on the props. in case of death. I have a cousin that owns alot of rental props and also had to get additional life insurance. He told me he owed around million on the houses and had to get that much in life insurance. I appreciate the cite so I can read that to the client. Not sure who the beneificary would be. I guess the wife to pay off the mortgages.Comment
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The words "Had to" is used to describe the t/p increasing his life insurance. Who required it? Or did the t/p just feel it was the best business decision?You have the right to remain silent. Anything you say will be misquoted, then used against you.Comment
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I own a bunch of rentals and have never been required to buy life insurance to cover the mortgages in case of death. I don't even have life insurance.Comment
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I know in the case of my cousin his bank insisted he have it or they would not loan him anymore money. I just assume the same for my client.Comment
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Did the bank (or an affiliate)
sell him the insurance? I bet it was whole/univeral life too, not good ole cheap term (mo money for the sales person!).Originally posted by geekgirldany View PostComment
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There are several possible options here. The bank may have required him to buy Credit Life Insurance from them, which will cover the outstanding credit balance. Or he could have bought more life insurance on his own, named a spouse or anyone beneficiary, and assigned the proceeds to the extent of the outstanding loan at his death to the bank.
This is done with an assignment form and the words "as it's interest may appear." The bank then has to provide documentation as to the amount of the outstanding indebtedness to the insurance company, they get theirs, and the bene gets the rest (if any.) When the loan is paid off, and the insured is still living, the assignment can be removed, and the insured can keep the policy with no infringements on it.
Or the bank may have been named an irrevocable beneficiary on such a policy (not a good option -- see assignment above for better way.)Comment
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