I just found out in a continuing ed course that since at least 2010 if a taxpayer dies with unrecovered pension costs these go on the decedent's return as Sch A Miscellaneous deductions not subject to the 2% of agi haircut. Does anyone know how long this has been the rule? Back in '92 when I started I read in my text that there was an "annuity gamble" and some people recovered in life more than their costs and others less but that any not recovered in this life was lost to the person. Did I misunderstand or have things changed and if so when did they change?
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I can't answer the tax question for 1992, but the way you've described it, you're talking about two different things. With a maximum tax rate of 35%, even if you could deduct, say, $10,000 in lost pension or annuity investment, that only gives you at most $3,500. There's still at least $6,500 that's lost to the "annuity gamble."Originally posted by erchess View Post
With the vast array of complex pension and annuity options today, I have no idea of whether the gamble still exists, but if not, it's not because of tax deductions. I can imagine a product where a portion of the investment is used for term life insurance in a way that the initial investment is guaranteed against that eventuality (though a profit isn't). -
Unless.... at least in case of civil service CRS pensions.... the widow(er) continues to draw the pension. In this case he/she continues to use the same recovery schedule decedent was using.Originally posted by erchess View PostChEAr$,
Harlan Lunsford, EA n LAComment
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I believe that ยง72(b)(3)(A) is the section that gives the deduction on the decedent's return. That code section was put in place by the Tax Reform Act of 1986. I believe it was effective for any annuitant's annuity whose starting date was after 7/1/86.Originally posted by erchess View PostComment
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From a financial standpoint, some get back more than their cost in the annuity, and some pass away with some unrecovered cost in the annuity. From a tax standpoint, the cost in the annuity is recovered over a certain number of payments and, if the annuitant dies without a survivor annuitant then any unrecovered cost is a deduction allowed on the decedent's final income tax return.Originally posted by erchess View Post
Lost, yes in a financial sense, but not entirely lost in a tax sense.Comment
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TY All
I appreciate the answers.Comment
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