Declaring A Loss – NQ Annuity
If a client surrenders an annuity and it has a loss, the loss is deductible. IRS Pub 529, p. 11 says it is NOT subject to the 2% floor; IRS Pub. 575, p. 20 says it IS subject to the 2% floor. Wonder which one is correct? The 1040 Instructions (p. A-9) refers one to Pub. 529 for more details on Misc. Itemized Deductions.
Permalink Submitted by Alan Spross on Thu, 2008-07-03 20:17
Al,
The Pub 529 misc deduction NOT subject to 2% is only for the unrecovered basis at death on the final return, presumably in the case of life only annuities when annuitant passed prior to recovering the investment. If the owner surrenders the account while alive, the loss is subject to the 2%.
Pub 575 is also somewhat unclear on p 20 where the only reference is to distribution while the owner is alive and there is no mention of the different provisions for unrecovered basis at death.
Why the difference? Perhaps some industry lobbying?