Section 1035 Exchange Rules

A 1035 exchange is a provision in the internal revenue service irs code allowing for a tax free transfer of an existing annuity contract life insurance policy long term care product or.

Section 1035 exchange rules. A tax free 1035 exchange is also referred to as section 1035 exchange. A general rules no gain or loss shall be recognized on the exchange of 1 a contract of life insurance for another contract of life insurance or for an endowment or annuity contract or for a qualified long term care insurance contract. However under section 1035 exchange rules you re not allowed to exchange an annuity contract for a life insurance policy.

Section 1 1035 1 of the income tax regulations provides that athe exchange without recognition of gain or loss of an annuity contract for another annuity contract under 1035 a 3 is limited to cases where the same person or persons are the obligee or obligees under the contract received in the exchange as under the original contract. The irs only grants tax free exchanges if the owner annuitant and insured individual are identical on both the old and new policies. A 1035 exchange is a way for taxpayers to take funds from one life insurance policy annuity or similar arrangement and put them in another of the same type without owing tax to the internal.

A section 1035 exchange replaces an annuity for a new one without tax consequences. For an exchange to qualify as tax free under the irc section 1035 the individual named on the annuity contract or life insurance policy must replace the old contract with an equivalent new contract.