A taxpayer, age 64, purchases an annuity from an insurance company for $82,000. She is to receive $683 per month for life. Her life expectancy is 20.8 years from the annuity starting date. Assuming that she receives $8,200 this year, what is the exclusion percentage and how much is included in her gross income

Exclusion Percentage = 48.10%

Included in income = $4256

Explanation:

The exclusion percentage can be calculated using the following formula:

=> Exclusion Percentage = Investment in Total /(Payments made * Life Expectancy *Total months in a year)

=> Exclusion Percentage = $82,000 / ($683* 20.8 *12)

=> Exclusion Percentage = 0.4810 = 48.10%  (Rounded off to two decimal places)

(Included in income):

The Included in income amount can be calculated using the following formula:

=> Included in Income = (Received amount - Return on Capital ) (Edited to accomodate changes)

& Return on Capital = ( Received amount * Exclusion percentage ) (Edited to accomodate changes)

=> ROC = $8200 * 0.481 = 3944.2 (Edited to accomodate changes)

=> Included in income = ( $8200 )- 3944.2 = 4255.80 => 4256 ( Rounded off to nearest dollar amount)

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