Form 1099-SB: Seller's Investment in Life Insurance Contract (2025 Guide)

If you've recently sold your life insurance policy to a third party, you might receive a tax form that looks unfamiliar: Form 1099-SB. This relatively new IRS form helps the government track certain life insurance transactions, particularly when policies are sold to investors who have no family or financial connection to the insured person. While the form itself is filed by insurance companies, understanding what it reports can help you prepare your taxes and avoid surprises. Let's break down everything you need to know about Form 1099-SB in plain English.

What Form 1099-SB Is For

Form 1099-SB, officially titled "Seller's Investment in Life Insurance Contract," is an information return that reports two critical numbers when a life insurance policy changes hands in specific circumstances. The form documents what's called a "reportable policy sale"—essentially when someone sells their life insurance policy to a buyer who doesn't have a substantial family, business, or financial relationship with the person insured under the policy (aside from the purchase itself).

Think of it this way: if you sell your life insurance policy through the secondary market—often called a life settlement or viatical settlement—rather than simply surrendering it back to the insurance company, that's typically a reportable policy sale. The IRS wants to know about these transactions because the sale may trigger taxable income for you. The form is filed by the life insurance company (called the "issuer"), not by you, but you'll receive a copy because it affects your tax situation.

The form reports two key amounts: Box 1 shows your "investment in the contract" (essentially what you paid into the policy minus what you've received back), and Box 2 shows the "surrender amount" (what you would have received if you'd surrendered the policy to the insurance company instead of selling it). These numbers help you calculate whether you owe taxes on the sale and how much. IRS.gov

The form also applies to transfers of life insurance policies to foreign persons, helping the IRS track these transactions for compliance purposes.

When You’d Use Form 1099-SB

Late or Amended Forms

Standard Timeline

Insurance companies must file Form 1099-SB with the IRS by March 2, 2026 (for 2025 transactions) if filing on paper, or by March 31, 2026 if filing electronically. You should receive your copy around the same time, allowing you to include the information when filing your 2025 tax return. IRS.gov

Corrected Forms

If the life insurance sale gets rescinded (cancelled), the insurance company must file a corrected Form 1099-SB within 15 calendar days of receiving notice of the rescission. They must also send you a corrected statement within the same timeframe. If you receive a corrected form after you've already filed your taxes, you may need to file an amended return using Form 1040-X to correct any tax calculations based on the original 1099-SB.

What Triggers Corrections

Besides rescissions, corrections might be needed if the insurance company reported the wrong amount for your investment in the contract, listed an incorrect surrender value, or made errors in your personal information (name, address, taxpayer identification number).

Late Filings

If you haven't received your Form 1099-SB by mid-March and you know a reportable policy sale occurred, contact the insurance company directly. They're required to provide you with a copy. You can still file your taxes using your own records, but having the official form ensures the numbers match what was reported to the IRS.

Key Rules or Details for 2025

Several important regulations govern Form 1099-SB for the 2025 tax year:

• Who Must File: The issuer of the life insurance contract—the company that bears the risk and administers the policy—must file Form 1099-SB when either of two things happens: (1) they receive a statement from an acquirer about a reportable policy sale (such as Form 1099-LS), or (2) they're notified that the policy has been transferred to a foreign person. The issuer's designee can also file on their behalf. IRS.gov
• E-filing Threshold: For 2025, if an insurance company files 10 or more information returns of any type in total (not just Form 1099-SB), they must file electronically. This threshold was lowered from 250 returns under the Taxpayer First Act of 2019, taking effect in 2024 and continuing into 2025.
• Separate Forms Required: Insurance companies must file a separate Form 1099-SB for each seller involved in a reportable policy sale or foreign transfer. If multiple people co-owned a policy and all sold their interests, each owner gets their own form.
• Investment in Contract Definition: For the original policyholder, this means all premiums paid minus any amounts received back tax-free. For subsequent owners (people who already bought the policy once before), it's an estimate based on what that owner paid, minus what they received, to the extent the insurance company knows or can reasonably estimate it.
• TIN Truncation Rules: Insurance companies may truncate (show only the last four digits of) your Social Security number or other taxpayer identification number on your copy of the form (Copy B), but they cannot truncate TINs on forms sent to the IRS.
• Exceptions: Some transactions don't require Form 1099-SB even if they might appear to qualify. These exceptions are detailed in IRS Regulations section 1.6050Y-3(f) and include situations where the seller is a foreign beneficial owner, certain section 1035 exchanges, or when unified reporting procedures apply.

Step-by-Step (High Level)

Since you don't file Form 1099-SB yourself, here's what happens during the reporting process and what you need to do:

1. The Sale Transaction Occurs

You sell your life insurance policy to a third-party buyer (an acquirer) through a life settlement transaction. The buyer typically has no family or financial relationship with the insured person.

2. The Acquirer Reports to the Issuer

The acquirer sends documentation to your life insurance company, often using Form 1099-LS (Reportable Life Insurance Sale), notifying them about the purchase. This alerts the insurance company that they need to file Form 1099-SB.

3. The Insurance Company Calculates

The insurance company gathers information to complete Form 1099-SB, including your investment in the contract (premiums paid minus tax-free amounts received) and the surrender amount (what you would have received if you'd surrendered the policy to them instead of selling it).

4. Form 1099-SB Is Filed and Furnished

By the March deadline, the insurance company files Form 1099-SB with the IRS and sends you a copy. This copy shows your name, taxpayer identification number, the policy number, and the two critical amounts in boxes 1 and 2.

5. You Use It for Your Tax Return

When you file your 2025 tax return, you use the information from Form 1099-SB to determine if you have taxable income from the sale. Generally, if you received more than your investment in the contract (Box 1) plus your basis adjustments, you'll have taxable income. The character of that income (ordinary income or capital gain) depends on various factors. Consult a tax professional or see IRS Publication 525 for guidance on reporting life insurance sale proceeds.

6. Keep Records

Store your Form 1099-SB with your tax records for at least three years, though keeping it longer is advisable given the complexity of life insurance taxation.

Common Mistakes and How to Avoid Them

Mistake #1: Reporting Errors by Insurance Companies

Insurance companies sometimes struggle to accurately calculate your investment in the contract, especially if you're not the original policyholder. If you bought the policy from someone else before selling it, the insurance company may not have complete records of what you paid. How to avoid: Keep detailed records of all premiums you paid and any amounts you received from the policy before the sale. Compare these to Box 1 on your Form 1099-SB and contact the insurance company immediately if the numbers don't match your records.

Mistake #2: Incorrectly Truncating TINs

Insurance companies might accidentally truncate (show only partial) taxpayer identification numbers on forms sent to the IRS, which is not allowed. Only the copy sent to you can have a truncated TIN. How to avoid: While this is the insurance company's responsibility, verify that your full TIN appears on your copy's instructions or supplemental materials so you can properly identify the form is yours.

Mistake #3: Missing Corrected Forms

If a life insurance sale gets rescinded within weeks or months of the original transaction, the insurance company must file a corrected Form 1099-SB within 15 days. These corrections can easily be missed, especially if you've already filed your taxes. How to avoid: If your life settlement gets cancelled for any reason, immediately contact the insurance company to confirm they're filing the correction and watch your mail carefully for the corrected form. File an amended return promptly if you've already filed.

Mistake #4: Not Filing When Required

Insurance companies sometimes don't realize they need to file Form 1099-SB, particularly with foreign transfers or when notices come from unusual sources. How to avoid: While this is primarily the insurance company's concern, if you completed a reportable policy sale and haven't received a Form 1099-SB by mid-March, contact the company. You need this form to properly report the transaction on your return.

Mistake #5: Confusing the Form with the Taxable Gain

Many people assume the amounts shown on Form 1099-SB directly represent their taxable income. The form only provides informational amounts—you still need to calculate your actual taxable gain. How to avoid: Understand that Form 1099-SB provides two reference points, but your actual taxable amount depends on what you received from the sale (which isn't on the form), your investment in the contract, and other tax basis adjustments. Consider working with a tax professional for these complex calculations.

Mistake #6: Throwing Away the Form

Some recipients mistakenly think Form 1099-SB is just informational and doesn't require action. How to avoid: Treat Form 1099-SB seriously. The IRS has received a copy with your taxpayer identification number on it, and they'll expect to see the corresponding income (if applicable) reported on your tax return.

What Happens After You File

After the insurance company files Form 1099-SB with the IRS and provides you with a copy:

IRS Matching Process

The IRS receives the form and adds it to their database connected to your Social Security number or taxpayer identification number. When you file your tax return, their computers will look for income reported from life insurance sales. If the IRS sees Form 1099-SB in their system but doesn't find corresponding income on your tax return (when it should be there), you may receive a notice asking about the discrepancy.

Your Tax Return

You'll report any taxable gain from the life insurance sale on your Form 1040. The exact line and form depend on the character of your gain. Generally, you'll report it on Schedule D (Capital Gains and Losses) or as ordinary income, depending on your specific situation and how long you held the policy. The Form 1099-SB itself doesn't get attached to your tax return, but you must keep it with your records.

Potential IRS Questions

Because life insurance sale taxation is complex and Form 1099-SB is relatively new (introduced in 2018), the IRS sometimes sends notices requesting clarification. These aren't accusations of wrongdoing—they're just verifying that the transaction was reported correctly. If you receive such a notice, respond promptly with documentation showing how you calculated your taxable gain.

State Tax Implications

Most states that have income tax will want to know about life insurance sales if they generated taxable income federally. Check your state's requirements, as some states have their own reporting rules for life insurance transactions.

Audit Considerations

Life insurance sales, particularly large ones, may increase your chances of audit simply because they represent unusual transactions. This is another reason to maintain excellent records showing all premiums paid, any loans taken, dividends received, and the actual sale proceeds you received.

Future Impact

If you later discover an error on your Form 1099-SB after filing your taxes, you may need to file an amended return (Form 1040-X). The IRS allows three years from the date you filed your original return or two years from when you paid the tax (whichever is later) to file an amended return claiming a refund.

FAQs

Q1: Do I need to file Form 1099-SB myself?

No. Form 1099-SB is filed by the life insurance company (the issuer) that administered your policy. You're the recipient of the form, not the filer. However, you must use the information provided on the form to accurately report any taxable income from your life insurance sale on your personal tax return.

Q2: What's the difference between Form 1099-SB and Form 1099-LS?

Form 1099-LS (Reportable Life Insurance Sale) is filed by the buyer (acquirer) of the life insurance policy to report the purchase to the IRS and notify the insurance company. Form 1099-SB is filed by the insurance company to report the seller's investment in the contract and the surrender amount. Think of Form 1099-LS as the document that triggers the need for Form 1099-SB. As the seller, you may receive copies of both forms, but they serve different purposes in the reporting chain.

Q3: I received Form 1099-SB, but I didn't make any money on the sale. Do I still need to report it?

Yes, you should still report the transaction on your tax return, even if you didn't have a taxable gain. Reporting it shows the IRS that you received the form and properly accounted for the transaction. If your investment in the contract (Box 1) was equal to or greater than what you received from the buyer, you won't owe tax, but documenting this prevents IRS inquiries. Consult a tax professional to ensure proper reporting, especially for transactions without gains.

Q4: The surrender amount (Box 2) is different from what I actually received from the buyer. Is this a mistake?

No, this is actually correct. Box 2 shows what you would have received if you'd surrendered the policy back to the insurance company—it's a hypothetical amount used for reference. The actual amount you received from the third-party buyer isn't shown on Form 1099-SB. You'll need documentation from the settlement company or buyer showing what you actually received, as that's what determines your taxable gain. The surrender amount helps provide context about the policy's value at the time of sale.

Q5: I sold my life insurance policy in December 2025, but haven't received Form 1099-SB. When should I expect it?

You should receive Form 1099-SB by early March 2026. Insurance companies must file the form with the IRS by March 2, 2026 (paper filing) or March 31, 2026 (electronic filing), and they must provide your copy around the same time—typically by the paper filing deadline. If you haven't received it by mid-March 2026, contact your insurance company. You may need to file for an extension on your tax return if the form arrives late and you need time to properly calculate your taxes.

Q6: Can I avoid receiving Form 1099-SB by keeping the life insurance sale private?

No. Reportable policy sales must be reported by law, and keeping the transaction "private" would be illegal tax evasion. When you sell a policy through the secondary market, the buyer is required to file Form 1099-LS with the IRS and notify the insurance company, which triggers the insurance company's obligation to file Form 1099-SB. The IRS has multiple checkpoints in place specifically to track these transactions. Failing to report taxable income from a life insurance sale can result in penalties, interest, and potential criminal charges.

Q7: My Form 1099-SB shows I'm not the original policyholder, and the investment amount seems low. What should I do?

This is common when policies have been sold multiple times. Insurance companies often have incomplete records for subsequent owners and can only report what they know or can reasonably estimate. Box 1 will be based on the information available to the insurance company about premiums you paid. You should supplement this with your own detailed records showing what you actually paid to acquire the policy and any subsequent premiums you paid. Use your records (not just the Form 1099-SB amounts) to calculate your actual tax basis and taxable gain. Consider working with a tax professional, as these situations can be complex and the IRS understands that Form 1099-SB may not tell the complete story for non-original policyholders.

Additional Resources

For more detailed information about Form 1099-SB, visit the official IRS pages:

• About Form 1099-SB
• Instructions for Form 1099-SB
• General Instructions for Certain Information Returns

All information in this guide is based on official IRS guidance for the 2025 tax year. Tax situations vary significantly, so consult with a qualified tax professional for personalized advice about your specific life insurance sale.

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