Fifteen years ag year, he began
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Fifteen years ago, Mr. Fairhold paid $40,000 for a single-premium annuity contract. This
year, he began receiving a $1,100 monthly payment that will continue for his life. On the
basis of his age, he can expect to receive $249,600. Assume that on January 1, 2026,
Mr. Fairhold's unrecovered investment in the annuity is $1,650.
Required:
a. How much of his total 2026 annuity payments ($13,200) are taxable?
b. Assume that he dies in February after receiving only one $1,100 payment. What are
the tax consequences on his final Form 1040?
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