In 1991, John Idler purchased a single premium whole life insurance policy. In the current year his medical expenses are 15,000 and his AGI is75,000. What is the tax implication to John if he borrows the interest from the policy's accumulated cash value to pay his current year's medical expenses?
1) John will not be required to report the amount borrowed as income, but he will be allowed a medical expense deduction.
2) John will be required to report the amount borrowed as income, but he will not be allowed a medical expense deduction.
3) John will be required to report the amount borrowed as income and will be allowed a medical expense deduction.
4) John will not be required to report the amount borrowed as income and will not be allowed a medical expense deduction.