Mark a calendar year taxpayer, purchased an annuity for $50,000 in 2015 . The annuity was to pay him $3,000 on the first day of each year, beginning in 2015, for the remainder of his life. Mark's life expectancy at the time he purchased the annuity was 20 years. In 2017 Mark developed a deadly disease, and doctors estimated that he would live for no more than 24 months

Question

a. If Mark dies in 2018, a loss can be claimed on his final return for his unrecovered cost of the annuity.
b. If Mark dies in 2018, his returns for the two previous years can be amended to allocate the entire cost of the annuity to the years in which he received payments and reported gross income.
c. If Mark is still alive at the end of 2017, he is not required to recognize any gross income because of his terminal illness.
d. If Mark is still alive in 2037, his recovery of capital for that year is $500.
e. None of these.

Answer 1

a
RATIONALE: Mark's final return can report a loss in 2018 because he did not recover all of his cost of the annuity prior to his death. Answer d. is incorrect because Mark would have recovered his entire cost of the contract in the first 20 years under the contract, 2015-2034 . Answers b. and c. are also incorrect.