An annuity refers to an investment vehicle that you can buy that pays you a certain amount regularly. When you sell an annuity, you transfer the remaining annuity payments to the new owner. Depending on the market price, you may sell the annuity at a higher or lower price than the price at which you bought it. You then have to report the gain or loss on the sale of the annuity for tax purposes. The cost basis refers to the price you paid to acquire the annuity and serves as the basis of your gain or loss calculation.
Determine the price of the annuity at the time of purchase. You may obtain this information from your broker or the statement of purchase.
Find out the transaction fees you paid to acquire the annuity. For example, you may have paid a commission of a certain percentage of the annuity value to your broker to buy the annuity.
Add up the price of the annuity and the acquisition charges you paid to get the cost basis of the annuity. For example, if you bought the annuity for $5,000 and paid a commission of $100 to your broker, then your cost basis would be $5,100.
To calculate your gain or loss on the sale of annuity, deduct your cost basis from the price at which you sell the annuity. For example, if you sell the annuity for $4,000 and have a cost basis of $5,100, then your loss would be $1,100. If you inherited rather than purchased the annuity, your cost basis would be equal to the value of the annuity at the date its previous owner died.