CARD Q062
An insurer pays a beneficiary $160,000 of generally excluded death proceeds plus $1,200 of interest. What is ordinarily taxable income?
- Only half the death proceeds
- The $1,200 interest
- Neither amount under any circumstances
- The entire $161,200
The $1,200 interest
Interest is separate from the generally excluded death benefit. Installment payments can likewise contain both excluded principal and taxable interest.
Why each choice is right or wrong
A. Only half the death proceeds
Incorrect. No rule in the scenario taxes half the excluded death proceeds.
B. The $1,200 interest
Correct. Interest is separate from the generally excluded death benefit. Installment payments can likewise contain both excluded principal and taxable interest.
C. Neither amount under any circumstances
Incorrect. Interest is ordinarily taxable even when death proceeds are excluded.
D. The entire $161,200
Incorrect. The scenario identifies the $160,000 as generally excluded proceeds; adding interest does not make all proceeds taxable.
Review the related terms
Use these lessons to revisit the concepts and try additional practice questions.