I surrendered two insurance policies last year - one was a Whole Life policy and the other was a Variable Universal Life policy. The insurance company where I had the Whole Life policy sent me a 1099-R showing the gain on the policy, which I owe taxes on. The company where I had the Variable Universal policy did not send a 1099-R, because the surrender value was less than the cost basis (and hence no taxes due). My question is: am I allowed to report the loss on the Variable Universal policy? It seems unfair that I have to report gains on one of I'm not allowed to offset the loss on the other. TIA.

No, not unless both policies are under the same company and same account.

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Originally Posted by AtlantaTaxExpert

No, not unless both policies are under the same company and same account.

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Thanks for responding. Seems quite unfair, doesn't it? I ended up owing the feds several thousand $$ because until I did my taxes uding TurboTax I had assumed that I could use the loss with one policy to offset the gain on the other. Remind me to never "invest" in any life insurance other than a straight-forward term policy ever again!

NO ONE has EVER said the U.S. tax system is fair.

I am a firm believer in term only, do you investing almost anywhere except in a permanent life policy.

Not my area of expertise... but it does seem very logical. Apparently the courts treat the loss as the value of the prior insurance protection you had (ie. Had you died, you would have been economically protected --- like paying term insurance premiums).

And I'm with RichardBondMan -- never, ever, ever buy life insurance as an investment! Buy term, invest elsewhere.

As a financial planner, I advise 99% of my clients to buy term insurance, which is dirt cheap and GETTING CHEAPER! They even have slightly more expensive term which returns the premiums after a set period. I have not investigated this latest phenomenon, but it has to beat ANY of the value-added insurance policies, which, unfortunately, pay the biggest commissions and therefore will continue to be pushed by the insurance industry.