Can I claim tax deduction for my $4K loss in Annuity surrender?

Unfortunately, this is a tricky situation with annuities. Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, you could claim losses from annuity surrenders as miscellaneous itemized deductions subject to the 2% AGI floor on Schedule A. However, the TCJA suspended these miscellaneous itemized deductions from 2018 through 2025. Currently, annuity losses like yours generally aren't deductible on your tax return. The IRS views the fees and charges as costs associated with your investment rather than deductible losses. It's similar to how you can't deduct losses from selling personal property. The only potential exception would be if the annuity was held in connection with a business or for-profit activity, but this doesn't sound like your situation since you mentioned it was a personal investment started after college.

After dealing with a similar situation last year (lost about $3,200 on an annuity surrender), I found this amazing AI tax tool called taxr.ai that really helped me understand my options. It analyzed my documents and explained exactly why I couldn't claim the loss but helped me find other deductions I was missing. Was super simple - just uploaded my surrender statement and tax docs, and it broke everything down in plain English. I'm using it again this year because it found me an extra $670 in deductions I would have missed. Might be worth checking out at https://taxr.ai if you're still trying to maximize your return despite the annuity situation.

Just wanted to follow up about taxr.ai that I asked about earlier. I decided to try it out with my surrender documents and last year's tax return, and wow - while it confirmed I couldn't deduct the annuity loss (bummer), it caught that I had overpaid on state taxes last year because I didn't properly account for some retirement income being partially exempt in my state. It also showed me that I could still itemize deductions this year if I bunched my charitable contributions instead of taking the standard deduction. Definitely worth it for me - saved about $430 in total that I would have missed.

Have you tried calling the IRS directly to ask about your annuity loss deduction? I know this is the kind of specific tax question they can actually answer well. The problem is GETTING THROUGH to them! I spent 3 hours on hold last month trying to ask about a similar investment loss question. Finally discovered this service called Claimyr that gets you through to IRS agents fast - like within 15 minutes instead of hours. I was super skeptical but I used https://claimyr.com after seeing their demo at https://youtu.be/_kiP6q8DX5c and they got me through to an agent in 12 minutes. The agent confirmed the exact rules about investment losses and what qualified for deductions. Saved me tons of time and uncertainty.

I need to eat my words about Claimyr. After posting that skeptical comment, I was still desperate to talk to someone at the IRS about an investment loss issue similar to the original poster's. Figured I had nothing to lose so I tried it yesterday. I'm honestly shocked - got connected to an IRS agent in about 17 minutes. The agent clarified that while annuity losses aren't deductible specifically, I could use some cost basis adjustments on another investment that would help my tax situation. Saved me at least $700 in taxes plus hours of frustration. Never been happier to be wrong about something!

Just wanted to add another perspective here. I'm a financial advisor (not a tax pro), and I see clients with annuity surrender losses fairly often. While you can't deduct the loss directly, you should make sure you're tracking your "basis" correctly. If you ever buy another annuity in the future, you might be able to use a 1035 exchange which can preserve your investment without triggering taxes. Also, for anyone reading this who hasn't surrendered their annuity yet but is considering it, sometimes holding until certain surrender charges expire can make a big difference.

Has anyone used the loss harvesting strategy with annuities? My buddy claims he was able to somehow use an annuity loss to offset some gains, but I think he's confusing it with regular investment accounts.

I'm really sorry to hear about your $5K loss - that's incredibly frustrating, especially after contributing faithfully for 14 years. Unfortunately, the other commenters are correct that annuity surrender losses aren't deductible under current tax law. One thing I'd suggest is requesting a detailed breakdown of all the fees and charges from your insurance company if you haven't already. While it won't help with deductions, it's good to understand exactly where your money went (surrender charges, administrative fees, management costs, etc.) for future reference. Also, since you mentioned this was supposed to be a long-term investment, you might want to consider putting that $23K you received into a more transparent investment vehicle going forward - maybe a low-cost index fund in a taxable account or maximizing your 401k/IRA contributions if you haven't already. At least with those, any future losses could potentially be used for tax-loss harvesting. It's a tough lesson learned, but you're definitely not alone in this situation. The insurance/annuity industry has unfortunately complicated fee structures that aren't always clearly explained upfront.

I feel your pain on this one! I went through something very similar about two years ago with a whole life insurance policy that had an investment component. Put in about $15K over 8 years and only got back $11K when I surrendered it. The $4K loss was a real gut punch. What really helped me was sitting down and calculating the actual annual return I would have gotten if I had just put that money in a simple index fund instead. It was honestly depressing to see, but it also motivated me to be much more careful about investment fees going forward. Since you can't deduct the loss, I'd recommend at least making sure you're not missing any OTHER deductions this year to help offset the sting a bit. Things like charitable donations, state and local taxes (up to the $10K limit), mortgage interest if you itemize, or any business expenses if you have side income. Every little bit helps when you're already down $5K from the annuity situation. Also, if you haven't already, definitely read through all the fine print on any future investment products. I learned the hard way that "long-term investment" and "good long-term investment" are very different things!

I'm a tax preparer and see this frustrating situation every tax season. You're absolutely right to be upset about the loss, and unfortunately the other commenters are correct that annuity surrender losses aren't deductible under current law. One thing I always tell clients in your situation: make sure you keep ALL the paperwork from this surrender - the original contract, premium payment records, and the surrender statement. While you can't use the loss now, tax laws can change, and having complete documentation could be valuable if deductibility rules are restored in the future. Also, when you file your return, double-check that the insurance company properly reported the taxable portion (if any) of your surrender on Form 1099-R. Since you put in after-tax money, you shouldn't owe tax on getting your own contributions back, but sometimes there are reporting errors that can cause unnecessary complications. The silver lining is that you learned this lesson relatively early and can redirect that $23K into more transparent, lower-cost investments going forward. Consider this expensive tuition in the school of personal finance - many people don't realize how costly these products can be until much later in life when the losses are even larger.

I went through a very similar situation about 18 months ago with a variable annuity that I had been funding since 2011. Put in about $32K over the years and only got back $26K when I finally surrendered it - lost roughly $6K to various fees and charges that I never fully understood when I signed up. Like others have mentioned, you unfortunately can't deduct this loss on your tax return under current law. I spent weeks researching this and even consulted with a CPA, but the bottom line is that annuity surrender losses just aren't treated the same way as capital losses from stocks or bonds. What helped me move forward was doing a detailed analysis of where all my money went. I requested a complete fee breakdown from the insurance company, and it was honestly shocking - surrender charges, administrative fees, mortality and expense charges, underlying fund fees, etc. It really drove home why these products are often called "financial products sold, not bought." My advice: take that $23K you got back and put it into something with much lower fees and better liquidity. I ended up maxing out my Roth IRA for the year and putting the rest into a simple three-fund portfolio with Vanguard. The transparency and low costs are such a relief compared to the annuity world. Also, don't beat yourself up too much about this. The insurance industry markets these products very aggressively to young people, and they're designed to be confusing. Consider it an expensive but valuable lesson in reading the fine print and understanding fee structures before investing.

I'm really sorry this happened to you - losing $5K on what you thought was a safe long-term investment is incredibly frustrating. As others have confirmed, unfortunately you can't deduct annuity surrender losses under current tax law due to the Tax Cuts and Jobs Act suspending miscellaneous itemized deductions through 2025. What might help is thinking of this as valuable (albeit expensive) financial education. At 22, you trusted what seemed like professional advice, but now you have the knowledge to make much better investment decisions going forward. Many people don't learn about the high fees and surrender charges in these products until they're much older with even larger losses. For the $23K you received back, consider putting it into low-cost index funds in a taxable account or maxing out tax-advantaged accounts like your 401k or IRA if you haven't already. These will give you much better transparency, lower fees, and the ability to use any future losses for tax purposes. Also, definitely keep all your paperwork from this surrender - the original contract, payment records, and surrender statements. While the loss isn't deductible now, tax laws can change, and having complete documentation could be valuable if deductibility rules are restored after 2025. You're not alone in this situation - the annuity industry has unfortunately caught many young investors in similar fee traps. The important thing is learning from it and making better choices going forward.

I'm really sorry to hear about your $5K loss - that's such a frustrating situation, especially after being disciplined about contributing for so many years. Unfortunately, the other commenters are correct that you can't deduct annuity surrender losses under current tax law. The Tax Cuts and Jobs Act suspended the miscellaneous itemized deductions that would have previously allowed this type of loss (subject to the 2% AGI floor) through 2025. While this doesn't help with your immediate tax situation, I'd recommend using this experience as motivation to review your overall investment strategy. That $23K you received back could work much harder for you in low-cost index funds or by maxing out your 401(k)/IRA contributions. At least with traditional investments, any future losses could potentially be used for tax-loss harvesting. Also, definitely keep all your surrender paperwork - the contract, payment records, and surrender statement. Tax laws do change, and if miscellaneous itemized deductions are restored after 2025, having complete documentation could be valuable. I know it's little consolation right now, but learning about investment fees and surrender charges at your age, while painful, is actually better than many people who don't discover these costly structures until they're closer to retirement with much larger amounts at stake. Consider it expensive but valuable financial education that will serve you well going forward.