Discussion:Deduction from the surrender of a tax-deferred variable annuity
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Discussion Forum Index --> Basic Tax Questions --> Deduction from the surrender of a tax-deferred variable annuity
Discussion Forum Index --> Tax Questions --> Deduction from the surrender of a tax-deferred variable annuity
| 31 October 2009 | |
| Hi. I'm new to this forum and new to the tax field in general, so please forgive me if this question is too basic, but can the deduction from the surrender of a tax-deferred variable annuity for a loss be carried forward or backward, and if so, what authority in the code allows for this? Thanks for any help you can provide. | |
| 31 October 2009 | |
| I looked into a deduction for the loss when an NQ annuity was surrendered to collect cash last year. What I found was a line 21 deduction for the loss and not eligible to be part of an NOL which carries back or over. To be part of an NOL it must be trade or business loss. This isn't trade or business related. It also doesn't have capital loss treatment which would permit a capital loss carryover.
Much like an itemized deduction, it only reduces taxable income in the year of the loss. However, if the deduction wipes out other non business income and you are left with trade or business losses that didn't give a tax benefit, you may have an NOL from those items. | |
| 31 October 2009 | |
| Thanks, Kathi. I appreciate it. One more quick question just to clarify. In Section 72(b)(3)(C), it says for purposes of section 172, a loss deduction allowed under 72(b)(3) shall be treated as if it were attributable to a trade or business of the taxpayer, but 72(b)(3) doesn't apply to the surrender of an annuity, right? Also, and I know this is very basic, but where in Section 172 does it state that an individual's NOL only includes losses from a trade or business? Thanks again for your help. Like I said initially, I'm just starting out in this area, so your help is very beneficial. | |
| 31 October 2009 | |
| You need to read 172(c) which defines an NOL. Its pretty basic stuff to understand an NOL is only made up of trade or business losses. | |
Death&Taxes (talk|edits) said: | 31 October 2009 |
| As the author of this link notes, where to deduct the loss is entrance to a 'murky zone.'
http://www.foxnews.com/story/0,2933,69655,00.html This piece has quite a bit of explanatory boilerplate which is somewhat word for word with that found in a Motley Fool discussion, and in several others, though the Fool wants you to use the 4797. Most who back the Page 1 write off cite a 48 year old Revenue Ruling (Revenue Ruling 61-201 at legalbitstream) that was issued before the AMT and the 2% haircut. Googling 'Variable Annuity losses' gives a number of references, including Tax Almanac Discussion: Annuity losses where Riley weighs in. I would inform any client of the potential audit fee, and the potential cost of a Tax Court fight. The issue does not appear to be one easily settled by compromise, and perhaps the Service would feel this way also.....the risks of litigating could open floodgates [anyone think the Service isn't sorry it entered the mutual fund demutualization thicket?] | |
| 31 October 2009 | |
| Cats, as a new participant, you will also want to get to know the yellow search box. For instance, if you put in 'annuity loss' in the search box, you will find several other discussions on this topic. Sometimes saving you much time. | |
| 31 October 2009 | |
| I see no way to claim a loss on line 21 if the annuity is surrendered. However, if the annuity is sold, then I would agree that the loss would be deductible on line 21 under IRC Sec. 62(a)(3). | |
| 31 October 2009 | |
| I pulled out my file and the one I dealt with was a single premium annuity - just like the one in Rev Rul 61-201.
Not a variable annuity. | |
