Should I report Gains from Exchange of Insurance Contracts?

If you have a sale, exchange, or disposition of an insurance contract that doesn't qualify as tax exempt under IRC Section 1035, report the taxable exchange of any insurance contracts you reported for federal income tax purposes. If you have more than one taxable exchange of contracts, report the total gain you realized.

The following exchanges are tax-exempt under IRC Section 1035, so you shouldn't report them on your Pennsylvania return:
  • An exchange of a life insurance contract for another life insurance contract, an endowment contract, or an annuity contract;
  • An exchange of an annuity contract for another annuity contract;
  • An exchange of an endowment contract for an annuity contract; and
  • An exchange of one endowment contract for another endowment contract if the dates for payments begin on or before the original contract's payment dates.

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