cientax Posted February 3, 2009 Report Share Posted February 3, 2009 Client sold property in 2006 and used the proceeds ($80,000) to set up life insurance annuity. During 2008 they lost about $22,000 and their broker told them that they need to get out. So they take a distribution of about $58,000 and they receive a 1099R showing total distribution with code 1. The question, is there a loss they can take on Sch-A for the $22,000. I don't think they made any other contributions to the plan after it was set up but do know there were no deductible contributions. Another question, can this qualify for a rollover if it was rolled over in to a CD IRA within 60 days? Quote Link to comment Share on other sites More sharing options...
joelgilb Posted February 4, 2009 Report Share Posted February 4, 2009 loss in the annuity is most likely not going to give rise to a loss on the tax return since it was inside a retirement type vehicle. However, they should not have to pick up any income on the distribution. Does the 1099r show the Annuity/insurance premiums on line 5? This should offset the amount on line 1. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted February 4, 2009 Report Share Posted February 4, 2009 No to the second question, because this was not an IRA, it was just an insurance policy. The could not have used the money from their home sale to fund an IRA annuity, because that is way too much money to put in. Max for each of them would be $5000 that they could have put into an IRA in 2006. I think you need to read the paperwork on the annuity, because it does not make sense that they took their own money, bought an annuity, and then got a 1099R when they cashed it in. I think you need more info. Quote Link to comment Share on other sites More sharing options...
Randall Posted February 4, 2009 Report Share Posted February 4, 2009 No to the second question, because this was not an IRA, it was just an insurance policy. The could not have used the money from their home sale to fund an IRA annuity, because that is way too much money to put in. Max for each of them would be $5000 that they could have put into an IRA in 2006. I think you need to read the paperwork on the annuity, because it does not make sense that they took their own money, bought an annuity, and then got a 1099R when they cashed it in. I think you need more info. 1099Rs are issued for annuity and life insurance distributions. Annuities can be IRA or Non-IRA. I agree with KC, that this would not be an IRA annuity because the client put a large lump sum into the annuity. The 1099R reports the distribution proceeds. The basis appears to be $80,000. Excess of basis is taxable as ordinary income (with 10% penalty if applicable). If proceeds are less than basis, I believe the loss is deductible but I don't have cites off the top of my head. Review the rules on this, but I believe the loss is deductible. No on the rollover, like KC said. Quote Link to comment Share on other sites More sharing options...
Joel Posted February 4, 2009 Report Share Posted February 4, 2009 Cinetax, The insurance company should have reported the basis on the 1099-R and the taxable amount should have been 0. If this is not on the 1099-R get the insurance company to correct it. The $22,000 loss can be deducted on schedule A. Quote Link to comment Share on other sites More sharing options...
Randall Posted February 4, 2009 Report Share Posted February 4, 2009 Cinetax, The insurance company should have reported the basis on the 1099-R and the taxable amount should have been 0. If this is not on the 1099-R get the insurance company to correct it. The $22,000 loss can be deducted on schedule A. Good luck on getting the insurance company to issue a corrected 1099. Quote Link to comment Share on other sites More sharing options...
cientax Posted February 6, 2009 Author Report Share Posted February 6, 2009 Another question concerning this subject Is the loss in this annuity subject to the 2% on Sch-A? Thanks for all your help. Quote Link to comment Share on other sites More sharing options...
Joel Posted February 6, 2009 Report Share Posted February 6, 2009 Cinetax, Yes. Quote Link to comment Share on other sites More sharing options...
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