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Correction to correction.2% Limitation does apply to loss on "surrender" of commercial single premium deferred annulity, before it is annuitized. This is if you chose the less aggressive tax deduction choice discussed earlier.2% Limitation does NOT apply to deduction of unrecovered basis upon death and after annuity has been annuitized The Pub 529 Page 10 is more fully explained or amplified two pages later under the same topic.(Start snip Pub 519 Page 12)Unrecovered Investment in AnnuityA retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. Get Publication 575, Pension and Annuity Income, for more information about the tax treatment of pensions and annuities.(End snip)
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