Page 46 - Virtual Currencies

8:29 - 7-Feb-2023
Page 23 of 43
Fileid: … tions/p525/2022/a/xml/cycle08/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
2006 and in most cases before 2026. The maxi- amount payable to you at the time of the in- Interest option on insurance. If an insurance
mum amount you can treat as QPRI is sured person's death. If the benefit payable at company pays you interest only on proceeds
$750,000 ($375,000 if married filing sepa- death isn't specified, you include in your income from life insurance left on deposit, the interest
rately). You can't exclude debt canceled be- the benefit payments that are more than the you've paid is taxable.
cause of services performed for the lender or on present value of the payments at the time of If your spouse died before October 23,
account of any other factor not directly related death. 1986, and you chose to receive only the interest
to a decline in the value of your residence or to from your insurance proceeds, the $1,000 inter-
your financial condition. Proceeds received in installments. If you est exclusion for a surviving spouse doesn't ap-
receive life insurance proceeds in installments, ply. If you later decide to receive the proceeds
Limitation. If only part of a loan is QPRI, you can exclude part of each installment from from the policy in installments, you can take the
the exclusion applies only to the extent the can- your income. interest exclusion from the time you begin to re-
celed amount is more than the amount of the To determine the excluded part, divide the ceive the installments.
loan immediately before the cancellation that amount held by the insurance company (gener-
isn't QPRI. ally, the total lump sum payable at the death of Surrender of policy for cash. If you surren-
Example 24. You file a joint return. Your the insured person) by the number of install- der a life insurance policy for cash, you must in-
principal residence is secured by a debt of ments to be paid. Include anything over this ex- clude in income any proceeds that are more
than the cost of the life insurance policy. In most
cluded part in your income as interest.
$900,000, of which $700,000 is QPRI. Your res- cases, your cost (or investment in the contract)
idence is sold for $600,000 and $300,000 of Example 25. The face amount of the pol- is the total of premiums that you paid for the life
debt is canceled. Only $100,000 of the can- icy is $75,000 and, as beneficiary, you choose insurance policy, less any refunded premiums,
celed debt may be excluded from income (the to receive 120 monthly installments of $1,000 rebates, dividends, or unrepaid loans that
$300,000 that was discharged minus the each. The excluded part of each installment is weren’t included in your income.
$200,000 of nonqualified debt). $625 ($75,000 ÷ 120), or $7,500 for an entire You should receive a Form 1099-R showing
Host year. The rest of each payment, $375 a month the total proceeds and the taxable part. Report
(or $4,500 for an entire year), is interest income
these amounts on lines 5a and 5b of Form 1040
to you. or 1040-SR.
If you host a party or event at which sales are
made, any gift or gratuity you receive for giving Installments for life. If, as the beneficiary For information on when the proceeds
the event is a payment for helping a direct seller under an insurance contract, you're entitled to TIP are excluded from income, see Accel-
make sales. You must report this item as in- receive the proceeds in installments for the rest erated Death Benefits, later.
come at its FMV. of your life without a refund or period-certain
guarantee, you figure the excluded part of each Split-dollar life insurance. In most cases, a
Your out-of-pocket party expenses are sub- installment by dividing the amount held by the split-dollar life insurance arrangement is an ar-
ject to the 50% limit for meal expenses. For tax insurance company by your life expectancy. If rangement between an owner and a nonowner
years beginning after 2017, no deduction is al- there is a refund or period-certain guarantee, of a life insurance contract under which either
lowed for any expenses related to activities the amount held by the insurance company for party to the arrangement pays all or part of the
generally considered entertainment, amuse- this purpose is reduced by the actuarial value of premiums, and one of the parties paying the
ment, or recreation. Taxpayers may continue to the guarantee. premiums is entitled to recover all or part of
deduct 50% of the cost of business meals if the those premiums from the proceeds of the con-
taxpayer (or an employee of the taxpayer) is Surviving spouse. If your spouse died be- tract. There are two mutually exclusive rules to
present and the food or beverages aren’t con- fore October 23, 1986, and insurance proceeds tax split-dollar life insurance arrangements.
sidered lavish or extravagant. The meals may paid to you because of the death of your
be provided to a current or potential business spouse are received in installments, you can 1. Under the economic benefit rule, the
customer, client, consultant, or similar business exclude up to $1,000 a year of the interest in- owner of the life insurance contract is trea-
contact. Food and beverages that are provided cluded in the installments. If you remarry, you ted as providing current life insurance pro-
during entertainment events won’t be consid- can continue to take the exclusion. tection and other taxable economic bene-
ered entertainment if purchased separately fits to the nonowner of the contract.
from the event. Employer-owned life insurance contract. If
you're the policyholder of an employer-owned 2. Under the loan rule, the nonowner of the
Section 210 of the Taxpayer Certainty and life insurance contract, you must include in in- life insurance contract is treated as loan-
Disaster Relief Act of 2020 provides for the tem- come any life insurance proceeds received that ing premium payments to the owner of the
porary allowance of a 100% business meal de- are more than the premiums and any other contract.
duction for food or beverages provided by a amounts you paid on the policy. You're subject Only one of these rules applies to any one pol-
restaurant and paid or incurred after December to this rule if you have a trade or business, you icy. For more information, see sections 1.61-22
31, 2020, and before January 1, 2023. own a life insurance contract on the life of your and 1.7872-15 of the regulations.
employee, and you (or a related person) are a
For more information about the limit for meal beneficiary under the contract.
expenses, see 50% Limit in Pub. 463. However, you may exclude the full amount Endowment Contract Proceeds
of the life insurance proceeds if the following
Life Insurance Proceeds apply. An endowment contract is a policy under which
you're paid a specified amount of money on a
1. Before the policy is issued, you provide certain date unless you die before that date, in
Life insurance proceeds paid to you because of written notice about the insurance to the which case the money is paid to your designa-
the death of the insured person aren't taxable employee and the employee provides writ- ted beneficiary. Endowment proceeds paid in a
unless the policy was turned over to you for a ten consent to be insured. lump sum to you at maturity are taxable only if
price. This is true even if the proceeds were the proceeds are more than the cost (invest-
paid under an accident or health insurance pol- 2. Either: ment in the contract) of the policy. To determine
icy or an endowment contract issued on or be- a. The employee was your employee your cost, subtract any amount that you previ-
fore December 31, 1984. However, interest in- within the 12-month period before ously received under the contract and excluded
come received as a result of life insurance death, or, at the time the contract was from your income from the total premiums (or
proceeds may be taxable. issued, was a director or highly com- other consideration) paid for the contract. In-
Proceeds not received in installments. If pensated employee; or clude the part of the lump payment that is more
death benefits are paid to you in a lump sum or b. The amount is paid to the family or than your cost in your income.
other than at regular intervals, include in your designated beneficiary of the em-
income only the benefits that are more than the ployee.
Publication 525 (2022) Page 23