If you privately purchased an annuity contract from a commercial organization, such as an insurance company, you generally must use the General Rule to figure the tax-free part of each annuity payment. For more information about the General Rule, get Publication 939. Also, see Variable Commercial Annuities in Publication 575 for the special provisions of the General Rule that apply to these annuity contracts.

Sale of annuity. Gain on the sale of an annuity contract before its maturity date is ordinary income to the extent that the gain is due to interest accumulated on the contract. You do not recognize gain or loss on an exchange of an annuity contract solely for another annuity contract if the insured or annuitant remains the same.

See Transfers of Annuity Contracts in Publication 575 for more information about exchanges of annuity contracts. The publication also contains a brief discussion of the main features of variable commercial annuities and the rules that apply to these contracts to figure the tax-free part of each annuity payment.

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