Question

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $80 payment will George include in his gross income?

Answer 1

$48

Step-by-step explanation:

Data provided in the question:

Life annuity = $3,200

Monthly payments = $80

George's Life expectancy = 100 months

Now,

The annuity exclusion ratio =
`\frac{\textup{Life annuity }}{\textup{Life expectancy}}`

or

The annuity exclusion ratio =
`\frac{\textup{3,200}}{\textup{100}}`

or

The annuity exclusion ratio = $32

Therefore,

Return on capital per payment = $32

Hence,

The amount of the first $80 payment will George include in his gross income = $80 - $32

= $48