Life insurance proceeds are generally not taxable. The general rule is that if you receive a life insurance payout as a beneficiary, the amount is not considered taxable income. This means that you do not have to report the life insurance proceeds as income on your federal tax return. However, there are a few exceptions to this rule.
One exception is if you receive the life insurance payout in installments, rather than as a lump sum. In this case, any interest that accrues on the payout may be subject to taxation. Additionally, if you choose to receive the payout in the form of an annuity, the taxable portion of the annuity payments will be determined based on the amount of the payout and the expected return on the investment.
Another exception is if you sell your life insurance policy to a third party. In this case, any proceeds you receive from the sale may be subject to taxation. The tax treatment of these proceeds will depend on various factors, such as the amount of the proceeds and your cost basis in the policy.
It's worth noting that the tax rules surrounding life insurance can be complex, and it's always a good idea to consult with a tax professional or financial advisor for personalized advice. They can help you understand the specific tax implications of your life insurance policy and how it may affect your overall financial situation.