Bart's Spouse, Carla, Dies During the Current Year

Bart's spouse, Carla, dies during the current year. Carla's life insurance policy names Bart the sole beneficiary of the $2 million proceeds. Bart invests the $2 million in a bank certificate of deposit (CD) . For the current year, Bart earns $98,000 interest from the CD. What are the tax effects of these events for Bart?
I.The $98,000 is included in gross income.
II.The $2 million is included in gross income.
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A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

Correct Answer:

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