Nearly all are non-qualified annuities. It was money my Dad had saved and I'm pretty sure they were not ever in IRAs, 401Ks, etc.
Ok. That makes a big difference. Legal settlements follow the course of the underlying transaction. The recent mutual fund legal settlements involved inside trading with the assets in the fund. These generate capital gains, so the settlements that people have received over the past couple years are capital in nature.
In your case, annuities generate ordinary income. When you write off a loss on a variable annuity, you will take a deduction on your tax return for any losses you experience in connection with the investment portion of your annuity. You cannot write off fees and other expenses associated with the annuity, such as surrender charges. You must take the deduction on Schedule A of your tax return as a "miscellaneous itemized deduction." Only amounts in excess of 2 percent of your adjusted gross income qualify for the deduction.
Your "basis" in the annuity is your investment, less any withdrawals taken.
Here is a good article to read: http://www.ehow.com/info_7869251_can-off-loss-nonqualified-annuity.html#ixzz2aiqrZkQB
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Again, thanks for the question! Have a great day!
I think this isn't going to be too helpful. Am I missing something?
My mother's biggest losses were from:
1. Her advisor recommending she close annuities and open new ones (twisting or churning?) - resulting in early w/d penalties to reimburse the corp[oration for the agent's huge commission - something that can't be written off on her taxes, if I understand the article you linked to; and,
2. Encouraging this then-76-year-old retired lady on a fixed income to take out a loan on 80% of her nearly paid-off house and put it into the stock market - in 2006. My mother had paid no taxes for the previous 3 years, so there was no tax reason to do this. Ignoring the burst in the housing market and the effect of loosing the ability to make income on the eventual recovery (by having to take money out of her investments to pay the loan while the market sank), her losses on this were for the overpriced refi costs (done by the agents friends), the much higher interest paid on the new loan and the loss of capital that would have been paid off on the previous loan.
I'm finding it very difficult to comprehend how the IRS can construe making my mom partially whole on this as income, since she would not have paid tax on the result if her agent had been honest and none of this had happened.
Any help here?
P.S. - I signed up for a trial membership, so it's OK with me to count this as a new question.