Jay, a single taxpayer, purchased an annulty to help provide income during his retirement. He paid $36,000 for the annuity that provided a monthly benefit starting at his retirement date for the rest of Jay's life. His life expectancy at the time of his retirement was 180 months. Jay collected 192 payments before he died. Which of the following is true?
a. Since Jay is no longer working, none of the payments must be included in his gross income.
b. The first $36,000 received is a nontaxable recovery of capital, and all subsequent annuity payments are taxable.
c. If Jay's income is below $25,000, none of the payments he receives are taxable.
d. All of the last 12 payments he received are taxable.