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I have read the recent posts on the loss on a variable annuity contract and wonder whether the same arguements would apply for a variable life plan. The facts are as follows: Taxpayer deposits $250,000 with life insurance company which is invested in mutual funds. There is a $1,000,000 death benefit. The goal was to have the $250,000 increase in value over time, so that annual fee for the life insurance component decreases and eventually the beneficiaries receive the 1 million tax free. The investment portion of the account is now worth $170,000 and the taxpayers would like to cash out.
Do you have a loss under Section 165(c)(2) "losses incurred in anu transaction entered into for profit, though not connected with a trade or business?"
If so could you deduct the loss on the 1040 (line 14 or schedule A line 27?
Thanks for your input.
Susan E. Cohen
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