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There is NO way to avoid tax liability is income is recognized...
Sorry if you expected differently.
You father might want to take a private mortgage on the new home and pay it back within a short period after the old home is sold.He still may use a partial distribution form an annuity - but that distribution would be taxable.
The annuity payments that you receive are fully taxable if you have no investment in the contract.
If you contributed after-tax dollars to your annuity, your payments are partially taxable. You will not pay tax on the part of the payment that represents a return of the after-tax amount you paid. This amount is your investment in the contract.
In additional - if If your father receives annuity payments before age 59 1/2, he may be subject to an additional 10% tax on early distributions, unless the distribution qualifies for an exception.
There is no way to avid tax on distribution.