Determining cost basis of an investment plan

Question

I had a 25-year investment plan where i paid monthly premiums total amounting to $50k year to date, of that i withdrew $15k two years after commencing the premium payment which was the allowed withdrawable limit under the plan. The plan basically invested in 5 mutual funds and was managed by an investment management firm. In 2024, i surrendered the entire plan at a loss and received back only $10k and the remainder as surrender charges since i retired it before maturity. so for reporting the capital losses, my cost basis should be $50k or $35k ($50k-$15k)?

CoryF · Answer

That is a good question.

The U.S. tax code recognizes the payment of Foreign Tax as a credit or deduction on Foreign capital gains or other investment income, see Form 1116. In this case, that would mean that a deduction for the Capital Losses would be acceptable. So, the best progress will be to add Capital Sales proceeds and cost basis to the Investments and Savings > Add another Investment > Stock Sales.

You would indicate that you didn't receive a 1099-B. FreeTaxUSA will calculate the Capital Gains/Losses based on your entries. The Capital Loss will add to the above losses on the Mutual Fund and you will be able to deduct $3,000 capital loss per year.

MS2025 · Answer

thanks for the response. My follow up question to this is this investment is non-US; it was made while I was in Singapore with a Singaporean investment management fund and comprised of 5 equity funds (with over 50% holdings in US equities, rest global). Since the source is non-USD, it is essentially a foreign capital loss. Can I still report it and get benefit of the $3k deductible? I have no other US capital gains. I’m stuck on this aspect; my rest of the filing is fairly straightforward. Will really appreciate your help. Thanks

CoryF · Answer

Hello, MS2025

You have a good grasp on accounting for the Cost Basis. Yes, the $15K withdrawal did reduce your basis in the investment. Your cost basis for the loss sale is $35K using the information in your response.