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i had a annuity i cashed in early.it was for325000.00 i took

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i had a annuity i cashed in early.it was for325000.00 i took it out at 288000.00 can i turn that loss in on my taxes.i am 55 so i also have to pay 10% pentaly
Submitted: 2 years ago.
Category: Tax
Expert:  Bill replied 2 years ago.

Assuming it was a nonqualified (meaning it was not a retirement account such as an IRA or 403(b)) annuity then you could only claim the loss as a itemized miscellaneous deduction subject to 2% of your adjusted gross income (AGI). Only the amount of your miscellaneous deductions in excess of 2% of your AGI are actually deductible on Schedule A.

 

The 10% penalty would not apply since it only applies to income on the annuity and you have a loss.

 

From IRS Publication 575 - http://www.irs.gov/publications/p575/ar02.html#en_US_2011_publink1000226856

 

 

Losses. You may be able to claim a loss on your return if you receive a lump-sum distribution that is less than the plan participant's cost. You must receive the distribution entirely in cash or worthless securities. The amount you can claim is the difference between the participant's cost and the amount of the cash distribution, if any.

 

To claim the loss, you must itemize deductions on Schedule A (Form 1040). Show the loss as a miscellaneous deduction subject to the 2%-of-adjusted-gross-income limit.

 

You cannot claim a loss if you receive securities that are not worthless, even if the total value of the distribution is less than the plan participant's cost. You recognize gain or loss only when you sell or exchange the securities.

 

A loss under a nonqualified plan, such as a commercial variable annuity, is deductible in the same manner as a lump-sum distribution.

Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3078
Experience: EA, CEBS - 34 years experience providing financial advice
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