An annuitant undistributed investment in contract (also called the unrecovered investment in contract) equals the total amount of tax-free income that he would have received had he lived to reach his life expectancy minus the amount he actually received while alive.
Under IRC Sec. 72(b)(3), if the annuitant dies prior to reaching his or her life expectancy and there is no surviving annuitant, the IRS allows an income tax deduction on the deceased annuitant final income tax return for his undistributed investment in contract. This deduction is allowed for gift annuities funded on or after 1/1/1987. The deduction should be reported as a miscellaneous deduction, not a charitable deduction. It is not subject to the 2% floor that applies to certain miscellaneous deductions.
If the Gift Date of a gift annuity is on or after 1/1/1987, GiftWrap's Record Death function computes and stores the undistributed investment in contract when you record the death of the gift annuity's final annuitant. In determining this amount, Record Death ignores any payments that have been voided or that have check dates after the date of last payment. Once computed by GiftWrap, you should report the undistributed investment in contract to the executor of the deceased annuitant's estate so that the executor can declare it as a deduction on the deceased annuitant's final income tax return.
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