<p>Can someone give me insight into what, if any, deductions grandparents can take for helping with college tuition? A friend mentioned her parents are even taking deductions for private high schools.</p>
<p>I think that grandparents can contribute to a 529 plan, and in Colorado (don't know about which other states do the same), the amount contributed is exempt from state tax (5%).</p>
<p>Kirmum, I haven't heard about taking deducations for private high schools. Believe me, I have asked my tax attorney about this!</p>
<p>Grandparents can "gift" private high school tuitions without paying a gift tax even if it is over the individual gift limit. That might be what your friend meant. Unless they are donating directly to the school for a scholarship which is , in turn, given to the grandchild, but that is not going to stand muster if caught and I doubt any school would be party to that game. The other way would be if it is a parochial school with a parish share. A grandparent can pay the deductible parish share which is really a donation to the church, but it also serves a a tution discount for those kids whose families belong to the parish.</p>
<p>Does the same work with gifting college tuition?</p>
<p>I am not sure what the legality of the parish share situation. It just is not on the IRS's radar screen. But, no, you cannot give a tax deductible contribution to a college and have it go towards your kid's tuition in the form of a merit scholarship. It does happen in that people do donate to colleges, and those same people can conceivably have a kid in that college with a merit award. It's just a matter of amount. But there better not be any collusion in the situation.</p>
<p>Can grandparents gift tax above the $10K limit for college tuition without paying tax as they can for high school?</p>
<p>Unless they are donating directly to the school for a scholarship which is , in turn, given to the grandchild, but that is not going to stand muster if caught a>></p>
<p>Interesting Jamimom - My kids school just announced a huge donation from a local business leader for scholarships...and I wondered why the announcement noted that part of the money would go to the tuition of the grandchildren of the donor with the rest for "general scholarship funds". Now I understand.</p>
<p>Jamimom: gifting to religious churches for tuiition break or scholarship has been an under-the-table process for a long time, and by any stretch of the imagination, it is against tax rules. Kind of ironic and against religions values, I would think -- let's see, make a 'donation' to your parish to gain something free, such as tuition, just to stiff the tax man.</p>
<p>Kirmum: grandparents can pay a kid's college tuition but they must write the check directly payable to the college. That tuition gift to the grandchile is exempt from the $11k gift tax, but it is NOT tax deductible on grandparent's personal return. It's a great generation wealth transfer concept, and perfectly within IRS code.</p>
<p>Kirkum, the answer is yes, and the IRS code section addressing this is 2503(e)(2)(A). The money has to go directly to the school and is tuition only. And it applies to Pre school all the way to college as long as the school is a qualified educational institute as defined by another code secion, which is really most any school. This allows grandparents to bypass all kinds of inheritance and generation skipping taxes, and all sorts of things can be done with trusts as well. If you google "gift tax"; grandparents, you can find all kinds of things that give tax advantages if done properly. But unless there is a tremendous amount of money to spend down, it does not apply. Most people do not have that kind of money. When you get to those levels, the tax problems are not just income tax, and there are all kinds of thngs that can be done to address issues that many of us can only wish we had as a problem.</p>
<p>All I can say is Wow. You learn something new every day.</p>
<p>Regarding the mention of $11,000 gift tax exclusion, that it is per person. In other words grandparents could give #22,000 per year. </p>
<p>"When you make a contribution to a qualified state tuition program it is considered a gift. While, generally, gifts are subject to gift tax when they exceed $11,000 a year or $22,000 per couple (the limit for 2003 and 2004), there's a special exception to the general gift tax rule that applies to contributions to a qualified state tuition program. A couple can contribute a maximum of $100,000 in a single year and it is considered as a gift of $20,000 per year for five years in total."</p>
<p>Here's a link that describe a few strategies such as the use of Qualified State Tuition Programs. </p>
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<p>Regarding the mention of $11,000 gift tax exclusion, that it is per person. In other words grandparents could give #22,000 per year. </p>
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<p>So a couple can gift $22K per year <em>per recipient</em> ... a lot of money can be transfered out of an estate this way (avoiding inheritence taxes) and (following the line of the discussion) make a serious dent in the cost of college.</p>
<p>At our local parish school, parishoners get a substancial tuition break, about half the cost. However, they are required to give a certain dollar amount to the church via collection basket, a donation that is tax deductible. This is done at many parishes from California to New York, in some form. The IRS must know about this practice so I doubt if it is truly illegal. The issue has just not been addressed, and no one is eager to ask for a private letter ruling on the matter. Now if someone else pays that donation to the church on behalf of that tuition, a grandparent, it would still be tax deductible since it is a collection basket donation. But the chain starts getting a bit weaker, we can see.</p>
<p>Sorry Jamimon:</p>
<p>I did not intend to infer that being a member of any congregation or other organization should not qualify for educational discounts as per their published policy - the key being that its a published polcy, where it available to all (and is auditable). But, I have heard of situations where a parent/grandparent offers to increase the family donation via the collection basket (or building fund), while the organization then decides to offer a 'scholarship' to a student which just happens to be the grandchild of the donor.</p>
<p>Congress has created a lifetime exemption from gift tax for each donor (grandparent in this case). </p>
<p>Last year the credit amount was $675,000, but the new tax act increased the exemption to $1 million. As such, your mother could give gifts larger than $11,000 to a person in one year without paying a gift tax. To do so, she has to report the gifts to the IRS with a gift tax return. The IRS keeps track of the amounts to be sure that over her lifetime she does not exceed her exemption.</p>
<p>Also, Congress structured the tax code to include a special exception for the payment of educational expenses. *A donor can legally pay college tuition (or other educational expenses, like the costs of a private high school) without any gift tax, regardless of the dollar amount. However, in order for the gift to be tax free, she must follow these special rules: </p>
<ol>
<li><p>The exemption only applies to tuition. Any money she gives to help pay for room and board, transportation or entertainment counts against the $11,000 annual gift exclusion;</p></li>
<li><p>The college that your son enrolls in must have a full time faculty and regularly enrolled students. If the school is not a fully functioning educational institution, then this gift tax exemption will not apply to the tuition your mother pays; and</p></li>
<li><p>She cannot give the money directly to your son. The funds must be paid directly to the college.*</p></li>
</ol>
<p>There are two more tax breaks of note that relate to college expenses. The "Hope Scholarship" allows a tax credit of up to $1500 for college tuition paid (when strict guidelines are followed). The "Lifetime Learning Credit" allows a tax credit for up to 20% of tuition expenses (in years when the Hope Scholarship is not used). These cannot benefit your mother, but may assist the parent or student to offset college costs you pay directly.</p>