Sally owned a nonqualified deferred annuity contract for which she paid $50,000
ID: 2459010 • Letter: S
Question
Sally owned a nonqualified deferred annuity contract for which she paid $50,000 in total premiums and took a $20,000 annuity loan last year when the annuity's cash value was $65,000. Assuming she has never previously taken a distribution from the contractor, how much income, if any, must she recognize?
Selection one:
a- $15,000
b- $5,000
c- $20,000
d- $0
Joan borrowed $50,000 from her aunt to pay qualified education expenses. Since she repays her aunt $6,000 each year and considers the payment to consist of $5,000 as principal repayment and $1,000 as interest, how much can she deduct as student loan interest?
a- $1,000
b- $0
c- $6,000
d- $5,000
Explanation / Answer
1. Income that Sally shall recognize is d- $0 as she has just taken a loan from annuity; when she will receive the amount back, the amount in excess of the amounts contributed will be taxed as her ordinary income.
2. Joan can deduct a- $1,000 as student loan interest
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