Mary purchased an annuity that pays her $500 per month for the rest of her life. She paid $70,000 for the annuity. Based on IRS annuity tables, Mary's life expectancy is 16 years. How much of the first $500 payment will Mary include in her gross income (round to two decimals) ?

Question

Mathematics

Adrienne Knapp

20 October, 17:22

Mary purchased an annuity that pays her $500 per month for the rest of her life. She paid $70,000 for the annuity. Based on IRS annuity tables, Mary's life expectancy is 16 years. How much of the first $500 payment will Mary include in her gross income (round to two decimals) ?

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Mikaela Martin · Answer 1

Answer: $135.42

Step-by-step explanation:

Based on IRS tables, Mary is expected to receive 192 (16 years x 12 months) annuity payments. Her investment in the annuity is $70,000 and her return of capital for each annuity payment is $70,000/192 = $364.58. The return of capital portion of each annuity payment is not taxable (not included in gross income). Mary must include the excess received ($500.00 - 364.58) of $135.42 in her gross income.