The new tax law, Tax Cuts and Jobs Act of 2017, contains a provision that makes the tax treatment for the seller of a life insurance policy more favorable. The new tax law retroactively overturns a revenue ruling published in 2009 that reduced policy basis by “cumulative cost of insurance charges” assessed against the policy.
The new tax law clarifies the tax treatment to a seller of a life insurance policy as follows:
Amounts received up to the tax basis are received free of income tax,
Amounts received in excess of the tax basis up to the amount of the cash surrender value are taxed at ordinary income rates, and
Amounts received in excess of the cash value get favorable capital gains treatment.
Please contact us to learn more about how to value your life insurance policy beyond the policy cash surrender value.