Question

Ellie purchases an insurance policy on her life and names her brother, Jason, as the beneficiary. Ellie pays $32,000 in premiums for the policy during her life. When she dies, Jason collects the insurance proceeds of $500,000. As a result, Jason reports gross income of __________.

Answer 1

Answer:

He does not report any gross income as life insurance proceeds are exempted from tax.

Explanation:

As a rule life insurance proceeds to a beneficiary are not taxable, they are viewed as non taxable inheritance of the deceased to the beneficiary.

However if Ellie had instructed the insurance company to hold the funds for sometime before paying Jason, the interest earned during that period will be taxable.