Income tax on life insurance

[FBN2007]

What is the name of your state? MD

If I am the owner and beneficiary of a life insurance policy on my father, will I have to pay income taxes on the insurance proceeds at his death?

[moburkes]

From irs.gov:

4.9 Interest/Dividends/Other Types of Income: Life Insurance & Disability Insurance Proceeds

Are proceeds paid under a life insurance contract taxable and do they have to be reported as income?

Generally, if you receive the proceeds under a life insurance contract because of the death of the insured person the benefits are not taxable income and do not have to be reported. Any interest you receive would be taxable and would need to be reported just like any other interest received.

However, if the policy was transferred to you for valuable consideration, the exclusion for the proceeds is limited to the sum of the consideration you paid, additional premiums you paid, and certain other amounts. There are some exceptions to this rule. For additional information, call 1 800-829-1040.

[Betty]

I agree with moburkes. The GENERAL rule is that life ins. proceeds paid by reason of the death of the insured are exempt from income tax under IRC Sect. 101(a)(1). Death proceeds are subject to taxation, however, when the "transfer for value rule" is violated.