Exclusion Ratio

Exclusion Ratio

The percentage of an investor's return that is not subject to taxes. The exclusion ratio is a percentage with a dollar amount equal to the payback on one's initial investment. Any return above the exclusion ratio is subject to taxes. Most of the time, the exclusion ratio applies to non-qualified annuities.
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At some point, of course, the taxman must be paid; when the exclusion ratio has captured all of the cost basis, it ends and all remaining income is taxed.
The exclusion ratio is determined by dividing the amount the employee previously included in income (i.
Thus, the tax advantages of annuities (tax-deferral during accumulation, exclusion ratio applied to withdrawals, tax-free exchanges, no required distributions if nonqualified) may take on greater appeal going forward.
This strategy will also serve to avoid the exclusion ratio calculations for an IRA account with pre--and post-tax balances.
3) The investment in the contract to compute the exclusion ratio was F'S basis in the property transferred.
This ruling concluded that: (1) F realized capital gain based on the difference between F's basis in the property and the annuity's PV; (2) this gain was reported ratably over F's life expectancy; (3) the investment in the contract to compute the exclusion ratio was F's basis in the property transferred; (4) the excess of the property's FMV over the annuity's PV was a gift from F to S; and (5) the prorated capital gain reported annually was derived from the taxable portion of each payment.
The taxpayer may elect to calculate an exclusion ratio that is basically a weighted-average of the old and new tables.
Therefore, each SPIA payment will also have an additional 10 percent penalty tax applied each year to the taxable amount based on the exclusion ratio.
When B rolls to C, Company B will report the gain of $800,000 and C will calculate and adjust the exclusion ratio to reflect the gain.
Generally, when annuity payments begin, a taxpayer will need to calculate an exclusion ratio.
Income tax consequences to Bill Newsome Step 1 The exclusion ratio is 16.