Is money received from a annuity as an inheritance taxable as income?
The general rule (Section 102 of the federal tax code) says the value of property received in an inheritance or bequest is not counted as gross income to the recipient. Therefore, the value of the annuity on the date it passed to you should be an exclusion from gross income. However, income from an inheritance is included in gross income. For example, if you inherit $100,000 cash and put it in a savings account, then the $100,000 is not taxable but the interest earned on that amount is taxable. Likewise, any income you earn from the annuity will be taxable as gross income. The rules governing the taxation of annuities are a little complicated, so you probably will want to seek professional assistance with your tax return. However, the crux of the matter is that, under Section 72 of the federal tax code, each annuity payment is conceptually split into two amounts: a return of capital (“investment in the contract”) and an interest payment (“expected return under the contract”). In other
