As of 2026 a New Hampshire client owes no state income tax on any tier of a life settlement, because the Interest and Dividends Tax was repealed for taxable periods beginning after December 31, 2024 and New Hampshire has never taxed wages or capital gains. That makes the state overlay on this transaction genuinely zero, and it moves the entire planning conversation to the federal return: basis, character, the 3.8% net investment income tax, and Medicare premium thresholds.
The regulatory side is more substantive. New Hampshire has a current, detailed statute — the Life Settlements Act at RSA chapter 408-D, in Title XXXVII of the Revised Statutes Annotated — with a definitions section at 408-D:2 and a disclosure section at 408-D:9 that specifies what a provider and a producer must tell the seller. That is more than many states offer, and it gives a practitioner a concrete checklist to hold a transaction against.
This page is written for the CPA, EA, or tax attorney rather than for the policyholder. It assumes you have a client with an in-force policy and a decision to make, or a Form 1099-LS in a February document packet that nobody in the office has seen before. The most expensive error in this area remains a basis computation that still reduces basis by cost of insurance — a rule Congress repealed in 2017, retroactively.
In This Article
- RSA chapter 408-D and the disclosure checklist it creates
- New Hampshire’s tax posture, and what the 2025 repeal changed
- Adjusted basis: the retroactive 2017 repeal
- Splitting one payment into three characters
- Forms 1099-LS and 1099-SB, and the transfer-for-value rules
- Medicaid in a 209(b) state, and New Hampshire’s county cost-share
- Frequently Asked Questions
RSA chapter 408-D and the disclosure checklist it creates
New Hampshire’s statute is the Life Settlements Act, RSA chapter 408-D, sitting in Title XXXVII, the insurance title of the Revised Statutes Annotated. The regulator is the New Hampshire Insurance Department, which also maintains consumer material specifically on viatical fraud — including the practice known in the industry as clean sheeting, where an applicant conceals a known condition on an insurance application with the intent of later monetizing the policy.
Two sections are worth reading before you advise on a transaction. RSA 408-D:2 carries the definitions, including the statutory meaning of terminally ill — an illness or sickness that can reasonably be expected to result in death in 24 months or less — and of a viaticated policy, meaning a policy that has been acquired through a life settlement. That 24-month definition matters directly to the federal tax analysis, because IRC section 101(g) uses the same threshold for its income exclusion.
RSA 408-D:9 sets out the disclosures a life settlement provider must give to the viator and the insured, and the disclosures a life settlement producer must give to the viator. Those include the affiliation, if any, between the provider and the issuer of the policy, the provider’s identity and contact information, and affiliations between the provider and any purchaser. That is a checklist you can hold a client’s paperwork against. If those disclosures are not in the file, something is wrong with the transaction, and that is a finding you can report to the client in your own voice without giving insurance advice.
Statutory numbering changes. Before you cite 408-D in an engagement letter or written advice, pull the current text from the New Hampshire General Court’s published statutes or confirm with the Insurance Department. Our client-facing summary sits on our page on life settlement licensing in New Hampshire.
New Hampshire’s tax posture, and what the 2025 repeal changed
New Hampshire has never imposed a broad-based individual income tax on wages or salaries. What it did impose was the Interest and Dividends Tax, a narrow levy on interest and dividend income above a threshold. The Legislature enacted a phase-down and then a full repeal, and the tax no longer applies to taxable periods beginning after December 31, 2024.
For a settlement, this is doubly favorable, and the reason is worth spelling out because clients get it wrong. Even while it existed, the Interest and Dividends Tax did not reach capital gains, so the largest tier of a settlement was never subject to it. With the repeal, the ordinary income tier is not reached either. As of 2026 the state-level cost of a life settlement to a New Hampshire resident is zero, and there is no New Hampshire return to prepare for the transaction.
New Hampshire also imposes no estate tax and no inheritance tax; the legacy and succession tax was repealed more than two decades ago. Federally, the exclusion was set at $15 million per decedent for 2026 under the 2025 federal legislation and is indexed thereafter. The combined effect removes the argument that a policy must stay in force to provide liquidity for state death taxes, which is a common and usually wrong reason families hesitate.
So the levers that remain are all federal, and they are timing levers. The capital gain tier is net investment income, so the 3.8% tax under IRC section 1411 applies above the statutory modified AGI thresholds. A large settlement in one year also flows into the two-year lookback that drives Medicare IRMAA surcharges on Part B and Part D premiums, which for a client in their seventies is a real and frequently unmodeled cost. Where the client has discretion over the closing date, run December against January. The client-facing version is on our page on life settlement taxes in New Hampshire.
Adjusted basis: the retroactive 2017 repeal
Revenue Ruling 2009-13 held that a seller’s adjusted basis in a life insurance contract was reduced by the cumulative cost-of-insurance charges the contract had absorbed. On a policy in force twenty-five years that reduction could be large enough to convert most of the proceeds into gain, and it created an incoherent result: the surrender ruling issued the same day imposed no such reduction, so a sale was taxed more heavily than a surrender of the identical policy.
Section 13521 of the Tax Cuts and Jobs Act amended IRC section 1016(a)(1)(B) to remove the adjustment, retroactive to transactions entered into after August 25, 2009. Adjusted basis is now cumulative premiums paid, reduced by cash dividends received, partial surrenders, and untaxed distributions. Cost-of-insurance and mortality charges do not reduce it.
Documenting it is the real work. Request the full premium history and the carrier’s stated investment in the contract in writing. Where the policy came through a section 1035 exchange, basis carries over from the surrendered contract and the current carrier’s records will usually start at the exchange date; bridge that with the prior carrier’s records. And gross up for policy loans — where a loan is repaid at closing, the amount realized is the gross settlement price, not the net wire. A $350,000 sale with an $80,000 loan payoff produces a $350,000 amount realized.
| Item | New Hampshire position |
|---|---|
| Governing statute | RSA ch. 408-D, Life Settlements Act (Title XXXVII) |
| Definition of terminally ill | RSA 408-D:2 — death reasonably expected in 24 months or less |
| Required disclosures | RSA 408-D:9, provider and producer disclosures to the viator |
| Regulator | New Hampshire Insurance Department |
| State tax on the ordinary income tier | None — I&D tax repealed after 12/31/2024; no wage income tax |
| State tax on the capital gain tier | None — the I&D tax never reached capital gains |
| State estate / inheritance tax | Neither |
| Medicaid | DHHS / Bureau of Elderly and Adult Services; NH is a 209(b) state |
Splitting one payment into three characters
The federal ordering is fixed. Proceeds up to adjusted basis are recovered tax-free. The excess of the policy’s cash surrender value over adjusted basis is ordinary income, because that is the inside build-up the client would have recognized on a surrender and the exit route does not change its character. Everything above the cash surrender value is capital gain, long-term if the contract was held more than a year, reported on Form 8949 and carried to Schedule D.
Concretely: a Nashua client paid $160,000 of premiums, the contract’s cash surrender value at closing is $185,000, and the settlement pays $440,000. Basis recovery is $160,000. Ordinary income is $25,000. Long-term capital gain is $255,000. Surrendering the same contract would have produced $185,000 and the same $25,000 of ordinary income. The $255,000 difference is the part of the analysis that never shows up on a carrier statement, and it is the reason the comparison is worth running before a client signs a surrender form.
For a term policy with no cash surrender value, the middle tier is zero and the split is simply basis then capital gain. Because New Hampshire imposes no state income tax, the whole of that gain is taxed once, federally, which makes the after-tax outcome unusually clean to model. The general client comparison is on our page on lapse versus surrender versus settlement.
Forms 1099-LS and 1099-SB, and the transfer-for-value rules
TCJA section 13520 added IRC section 6050Y, implemented by final regulations at T.D. 9879 and applicable to reportable policy sales occurring after December 31, 2018. Form 1099-LS, Reportable Life Insurance Sale, comes from the acquirer and is furnished to the seller and to the issuing carrier; it reports the gross amount paid. Form 1099-SB, Seller’s Investment in Life Insurance Contract, comes from the issuing insurance company and reports the seller’s investment in the contract and the policy’s surrender amount — the two inputs for tiers one and two.
Clients lose the 1099-SB more than any other document in this transaction. Request a duplicate rather than estimating, and reconcile the carrier’s investment-in-contract figure against your own reconstruction, since it will not capture pre-exchange premiums or premiums paid to a predecessor on an acquired block.
On transfer for value, IRC section 101(a)(2) makes the death benefit taxable to a transferee who acquired the policy for valuable consideration, to the extent it exceeds consideration paid plus premiums the transferee subsequently paid. TCJA section 13522 added section 101(a)(3), which disables the usual exceptions — carryover basis, and transfers to the insured, a partner of the insured, a partnership in which the insured is a partner, or a corporation in which the insured is a shareholder or officer — where the transfer is a reportable policy sale. That is priced into the institutional market and is the buyer’s issue.
Your client’s issue is the parallel private transaction. An adult child offering to buy a parent’s policy, a closely held business restructuring a buy-sell, or a policy moved into an LLC for consideration each raises section 101(a)(2), and the analysis turns on facts that do not appear on the policy. Put it in a memo. Conversely, IRC section 101(g) excludes amounts received on a sale to a licensed viatical settlement provider where a physician certifies the insured is reasonably expected to die within 24 months — the same threshold RSA 408-D:2 uses — and provides a narrower per diem-limited exclusion for chronically ill insureds under section 7702B(c)(2).
Medicaid in a 209(b) state, and New Hampshire’s county cost-share
Long-term care Medicaid in New Hampshire runs through the Department of Health and Human Services, with the Bureau of Elderly and Adult Services administering services for older adults and the Choices for Independence waiver providing the home and community-based alternative to institutional care.
Two New Hampshire features change how a practitioner should approach the file. First, New Hampshire is one of the remaining section 209(b) states, meaning it is permitted to apply eligibility criteria more restrictive than the federal SSI standard in certain respects. Do not import a resource limit from a national chart. Confirm the current figure and the applicable methodology with DHHS. Second, New Hampshire is unusual in that its counties bear a share of the non-federal cost of nursing facility Medicaid, which is why county administrators track these cases closely and why the local county nursing home is a real part of the placement landscape rather than a historical artifact. Confirm the current cost-sharing formula with the department before describing it to a client.
The policy-specific rules are federal. Under 20 C.F.R. section 416.1230, the cash surrender value of life insurance is a countable resource unless the total face value of all policies on the insured is $1,500 or less, in which case the cash value is excluded entirely. Term insurance with no cash value is not a resource. A sale at fair market value is not an uncompensated transfer and creates no penalty under the 60-month look-back — but the proceeds become a countable resource in the month after receipt, which will defeat eligibility if nobody has planned the spend-down. Our page on nursing home Medicaid spend-down works through that sequence.
Cost context: recent published cost-of-care surveys put New Hampshire’s median semi-private nursing facility rate in the range of roughly $12,000 to $13,500 per month, among the higher figures in the country. For your file, request the policy cover page with form number, issue date, face amount, and owner; the most recent in-force illustration; the full premium history; and the current loan balance. Pine Lake Life Solutions provides education and a free policy review and does not purchase policies. We do not provide legal, tax, or investment advice — that remains your engagement. If an independent read on whether a client’s contract would draw interest would help before you build a projection, the review is free at (305) 209-7183.
Frequently Asked Questions
Does a New Hampshire client owe any state tax on settlement proceeds?
No. New Hampshire has never taxed wages or capital gains, and the Interest and Dividends Tax was repealed for taxable periods beginning after December 31, 2024. Both the ordinary income tier and the capital gain tier escape state tax entirely, and there is no New Hampshire return to prepare for the transaction. The planning work is entirely federal.
What should I check in a client’s settlement paperwork under RSA 408-D?
RSA 408-D:9 requires the provider to disclose to the viator and insured, and the producer to disclose to the viator, items including any affiliation between the provider and the policy’s issuer, the provider’s identity and contact information, and affiliations between the provider and any purchaser. If those written disclosures are absent from the client’s file, treat it as a serious defect and say so.
Is New Hampshire’s Medicaid resource limit the standard national figure?
Do not assume so. New Hampshire is one of the remaining section 209(b) states, which may apply eligibility criteria more restrictive than the federal SSI standard in certain respects. National summaries often publish a single nationwide number that does not reflect New Hampshire’s methodology. Confirm the current resource limit and the treatment of life insurance directly with DHHS before advising.
How does the RSA 408-D definition of terminally ill relate to the federal tax exclusion?
They use the same 24-month framing. RSA 408-D:2 defines terminally ill as an illness that can reasonably be expected to result in death in 24 months or less, and IRC section 101(g) excludes amounts received on a sale to a licensed viatical settlement provider where a physician certifies the insured is reasonably expected to die within 24 months. The federal exclusion requires that the buyer be properly licensed.
My software is reducing basis by cost of insurance. Is that still correct?
It is not. TCJA section 13521 amended IRC section 1016(a)(1)(B) to eliminate the cost-of-insurance basis reduction that Revenue Ruling 2009-13 had required, retroactive to transactions entered into after August 25, 2009. Modules built before 2018 sometimes still apply the old rule, and the result is overstated gain. Verify the computation manually on the first settlement you handle.
Should the closing date matter if there is no state tax?
Yes, for federal reasons. The capital gain tier is net investment income and can trigger the 3.8% tax under IRC section 1411, and a one-year income spike feeds the two-year lookback that sets Medicare IRMAA surcharges on Part B and Part D premiums. Where a client has a few weeks of flexibility on closing, modeling a December against a January settlement is worth the time.
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Related Reading
- Life Settlement Licensing New Hampshire
- Life Settlement Taxes New Hampshire
- New Hampshire Insurance Department Consumer Help
- New Hampshire Medicaid Asset Income Limits
- Lapse Vs Surrender Vs Settlement
- Nursing Home Medicaid Spend Down
- Elder Law Attorney Life Settlement Guide New Hampshire
- Trust Officer Life Settlement Guide New Hampshire
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.