Refer to the facts in the preceding problem. Assume that on January 1, 2025, Mr. F’s unrecovered investment in the annuity is $1,875.
a. How much of his total 2025 annuity payments ($15,600) are taxable?
b. Assume that he dies in February after receiving only one $1,300 payment. What are the tax consequences on his final Form 1040?