Question

George purchased a life annuity for $6,000 that will provide him $150 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $150 payment will George include in his gross income

Answer 1

$90

Step-by-step explanation:

Given

life annuity cost = $6000

life expectancy = 100 months

monthly payments = $150

First calculate the annuity exclusion ratio is by dividing life annuity cost with life expectancy

$6,000/100 = $60 return of capital per payment.

Therefore,

To calculate how much of the first $150 payment is included in gross income,

= first monthly payment - return of capital per payment.

= $150 - $60

= $90