How to Get a Tax Write-Off for Losses on an Annuity
Losses in the value of an annuity don't have to be a complete loss. You can use these losses as a tax deduction if you completely realize the loss by fully cashing out or surrendering the annuity. Once you have done this, you will be able to claim the deduction for your losses on your income taxes.
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Instructions
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Determine your loss from the annuity by subtracting the sale value from the total amount you paid into the annuity. If you were charged a surrender fee, add that back into the sale value first. For example, take an annuity into which $60,000 was paid, a $2,000 surrender fee was charged and for which $38,000 was received from the sale. The loss would be $60,000 - ($38,000 + $2,000) = $20,000 loss.
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Enter the loss amount on line 28 of Form 1040 Schedule A, along with a description.
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Fill in the rest of your deductions as usual. Go to line 29 and answer the question as to whether your deductions are limited. If they are not, add all your deductions on line 29. If they are, go to page 10 of the Schedule A instructions and complete the itemized deductions worksheet to determine the value to enter on line 29.
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Carry over the value from line 29 of Schedule A to line 40 of your Form 1040.
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Complete the rest of Form 1040 as usual with the addition of the itemized deductions.
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Tips & Warnings
There may be a surrender charge when you sell your annuity.
