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Question for the Money Doctors

Question submitted on Apr 22, 2014.

Question

I would like to surrendered my Universal Life insurance with National WesternLife. I was advise from that the the $10296.00 should not be tax deductible since I've paid more than double of the cash value. And if surrendered and need be they would issue a 1099R for IRS purposes and i would have to be responsible. I would like to use this money to pay of a really high rate loan. I guess what I'm really concerned with is that will at any point I be taxed for using this entire amount of money?

Answer

You can confirm this with the insurance company. Ask them what will be reported on the 1099R? If the cost basis is more than the distribution, then there should be no tax due.

However, if you fully surrender this policy and it is a loss. You may be able to claim the loss on your Schedule A under Miscellaneous Deductions. This deduction will be limited to the amount above 2% of your Adjusted Gross Income. Please take a look at Publication 529 from the IRS. You can look this up on www.irs.gov.


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