Need some tax advice re annuities.

[TNDemo]

My mother died last year and was receiving a monthly payment from a small annuity. After she died I received it for the remainder of the year. I have been sent a 1099-R for the amount I received and it states on it that I need to determine whether or not it is taxable. So for line 16 on the 1040 it had a table to determine how much is taxable. All the questions seem to related to the annuitant - age, etc. I can't seem to find something that says "if you inherited this." I am thinking that probably the whole amount is taxable for me but want to make sure. I e-mailed the IRS, who sent back an automated response saying to look on-line at the instructions for the 1040 and for further questions call them on Monday. Any tax experts here who know the answer?

[sadiesworld]

1. Wouldn't it just be an inheritance and not taxable as income?

[PDittie]

2. It depends on the law in the state where you live

Tennessee, I am guessing from your handle?

Since you got a 1099 you will very likely have to declare it as income on your taxes, but it depends.

Really, you should contact an attorney where you live who won't charge you for more than a quarter-hour of time (which could still be $50 or so).

Who handled the disposition of her estate last year? He ought to know. Even your accountant ought to be able to answer this (presuming you have one).

Good luck.

[rogerashton]

3. It may be too late, but

if you roll it into an IRA for yourself it probably is not taxable. Otherwise, it is taxable and the bite may be large.

When my Dad died, the bank person who closed the account never gave us that option as, according to law, she was supposed to. Then the 1099 was sent to -- my Dad's address! But the house was sold and the forwarding had run out, so I didn't know to pay and had to pay a penalty. I'm financially OK, could handle the hit, but my sister, a retired schoolteacher, was seriously set back by it.

[papau]

4. basis is value at time of inheriting - so ins company can get you

exclusion percentage - should be close to 100% excluded.

However - if this was IRA, the IRA is considered "untaxed" and your basis drops to zero - now this is where you need an accountant or lawyer - not an actuary with a bad memory! - cause I forget if the value of the annuity - or just the payments recieved this year - get thrown into your tax return.

of course, state law need not follow federal - so you need a Tenn actuary/accountant/lawyer - all of which cost - and since the insurance company trys to know these things and talks to you for free - that is where I would go first!

[TNDemo]

5. A little more information.

I was her conservator (she had Alzheimer's) and I elected to take a five year payout of the annuity to help pay for her nursing home. She was 4+ years into the payout when she died. I had been asked at the time I took the payout about rolling it into an IRA but don't think I got asked this time. I know that the amount she was getting from the annuity was taxable to her in years past and I assume the part I got is going to be taxable too but that table for determining whether it was taxable kinda threw me off.