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Will I be paying taxes on my Life Settlement?

What you’re reading is only a general guideline on the taxation for a life settlement transaction. It is always recommended that you seek the advice of a professional tax advisor because each case will be treated differently by the IRS. Please remember that this is not legal counsel on tax regulations and the following information is just a general rule of thumb to consider.

Most life settlements are considered taxable

The proceeds from a life settlement transaction are generally considered taxable, but different parts of the proceeds will be subject to different tax treatment. Any proceeds up to the cost basis (the amount paid in premiums) will not be taxed.

The amount of the settlement that is between cost basis and the policy cash surrender value will be taxed as ordinary income. Any proceeds exceeding the cash surrender value will generally be treated as a capital gain for tax purposes.