Answer:
a. How much gross income does Duc have from the contract in the current year?
According to the IRS, Duc's life expectancy is 90 years and 8 months, or 310 more months. This means that Duc can discount from his monthly income $15,000 / 310 = $48.39 (which we must round down to $48).
Duc received 8 x $200 = $1,600
deductions = 8 x $48 = $384
taxable income = $1,216
b. Assume that Duc dies on April 2, 2025. How does Annika account for the contract in 2025?
Annika should account for the contract in the same way as Duc did, and will also be able to discount $48 per month form her gross income. Since Annika will still file her taxes as married during 2025, she will report net income from this contract = ($200 - $48) x 12 months = $1,824
c. Assume the same facts as in part b and that Annika dies on August 4, 2032. How does the executor of Annika's estate account for the contract in the year of her death?
Both Duc and Annika received [(2032 - 2019) x 12] + 4 = 160 payments in total, so her estate is entitled to a tax deduction = (310 - 160) x $48 = $7,200
Since she died on August, her estate must also report income = ($200 - $48) x 8 = $1,216
