Annuity bankruptcy

It depends. When an annuity becomes worthless and if you have an after-tax investment in the annuity contract then you would report this as a 'worthless' investment loss. 

• After-tax means you did pay tax on the money you used to invest in the annuity. Only these dollars, not any earnings in the plan, can be used to report an investment loss.

First figure out the after-tax investment in the plan, next use the steps below to enter your worthless annuity.

You can report it in the year they are deemed to be completely worthless. This usually happens when a company stops doing business or files bankruptcy.  You should be prepared with your proof and retain it in your tax file.

The sales price would be zero and the cost basis would be what you actually paid for the stock and December 31st as the date of sale. 

 To enter worthless stock as investment sales: (You should use the description as 'Worthless'.)

1. Open (continue) your return in TurboTax.
2. Navigate to the investment sales section:
   • TurboTax Online/Mobile: Go to investment sales. If using this application, make sure it is open
   • TurboTax Desktop: Search for investment sales and then select the Jump to link.
     • Or Personal Tab > Continue > I'll choose what I work on > Scroll to Investment Income > Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other
3. On the next screen, select the type of sale you had (stock, second home, collectible, land etc.) and click Continue.
4. Continue following the onscreen instructions to enter the sale. 
5. If any money is received in the future it will be taxable income.

Helpful Information:

• IRS FAQ -Worthless Security