sydneysteve
New member
I have a tax-related question that centers around a $50,000 loan my wife and I took out in 2023 from her whole life insurance policy, which originally involved a one-time premium payment of $50,000 in 2016. The base cash value at the time of borrowing stood at $59,500, plus $2,200 in paid-up additions, totaling $61,700.
And now we received a 1099-R, with a listed taxable amount of $11,700 in box 2a, with distribution code 1D in box 7. As far as I understand, this $11,700 represents the difference between the accumulated cash value and the $50,000 we borrowed. My initial assumption was that borrowing from a whole life policy would not incur tax implications, especially since the borrowed sum did not exceed the original upfront premium paid in 2016.
However we did opt to have dividends earned applied to the loan on the policy's annual birth date. Despite this, the dividends earned were significantly less than the $11,000 stated on the 1099-R. Could this election be the trigger for the taxable event? My attempts to seek clarity from the policy service department have been unsuccessful, leaving me without a definitive understanding of why there's a taxable amount of $11,000.
They provided me with this explanation for the taxable gain, calculation reads as follows:
"The taxable gain is calculated as:
Base Cash Value: $59,000
Plus (+) paid-up additions: $2,200
Subtract (-) adjusted cost basis: $50,000
Equals: Tax Gain Amount: $11,700"
My main thing is we borrowed $50,000 and did not withdraw it, why is there a taxable amount? and I've been making monthly payments on the loan, inclusive of the 8% interest it accrues.
I'm just really confused and am seeking clarity from all of this, any insights?
And now we received a 1099-R, with a listed taxable amount of $11,700 in box 2a, with distribution code 1D in box 7. As far as I understand, this $11,700 represents the difference between the accumulated cash value and the $50,000 we borrowed. My initial assumption was that borrowing from a whole life policy would not incur tax implications, especially since the borrowed sum did not exceed the original upfront premium paid in 2016.
However we did opt to have dividends earned applied to the loan on the policy's annual birth date. Despite this, the dividends earned were significantly less than the $11,000 stated on the 1099-R. Could this election be the trigger for the taxable event? My attempts to seek clarity from the policy service department have been unsuccessful, leaving me without a definitive understanding of why there's a taxable amount of $11,000.
They provided me with this explanation for the taxable gain, calculation reads as follows:
"The taxable gain is calculated as:
Base Cash Value: $59,000
Plus (+) paid-up additions: $2,200
Subtract (-) adjusted cost basis: $50,000
Equals: Tax Gain Amount: $11,700"
My main thing is we borrowed $50,000 and did not withdraw it, why is there a taxable amount? and I've been making monthly payments on the loan, inclusive of the 8% interest it accrues.
I'm just really confused and am seeking clarity from all of this, any insights?