I am wondering if paying graduate school tuition for adult child will consider a gift and subject to gift tax?
Sorry I asked, but this is from IRS
“general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.
Gifts that are not more than the annual exclusion for the calendar year.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use.
In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.”
Read the rules carefully. You might be require to pay the school directly. Check with a tax specialist.
It might, but it is unlikely that you will meet the lifetime maximum and that you’d then be paying a gift tax on that amount. The child/student wouldn’t pay a tax. If you (and spouse if you are married) give more than $14k to a child in one year ($28k joint), you may have to file a form when you file your income tax.
I think it is over $15k this year but check.
I think compmom is right; paying their tuition is a gift, but if the total you spend in a yr is under the limits then the recipient doesn’t have to claim it.
Also, the gift could be in the form of a 2-step loan. “Loan” money to recipient by check, then forgive the debt. Forgiving the debt then counts as a gift. This way offers a nice clean paper trail if ever audited.
Payment of TUITION (only) directly to the school is NOT considered a gift.
Gift limit (2016) still $14,000. So $14,000 from each parent for total of $28,000 a year.
You are a very generous parent.
This discussion makes me wonder:
- Does a parent have to report to the IRS if he/she paid undergraduate tuition over $14,000?
- Does a parent have to report to the IRS if he/she paid undergraduate tuition over $14,000 and helped to pay undergraduate loan ($14,000 or less)?
- Does a parent have to report to the IRS if he/she paid undergraduate tuition over $14,000 and gave money for other reason ($14,000 or less)?
The turbo tax link above answers many questions
In summary:
Pay the school directly, no tax consequences (tuition is exempt from gift tax)
Give money to your child $14K per parent. $28K if parents are married. $28K unmarried parent, married child. $56K married parents, married child+spouse.
Yes, I paid the tuition to the school directly.
Perhaps you may be aware, before your child is age 24, and if you can claim him/her a dependent, you can get an education tax credit on line 50 of your 1040, amount may vary.
@artloversplus . I think you can only take that credit for undergraduate education.
@sax
You are referring to the America Opportunity Credit but there is another Life Time Learning credit that applies to graduate studies. Turbo tax will calculate the credit for you once you answered their questions.
Please refer to this:
In addition, as the above article pointed out. If you are not qualified for either credit, you still can get a $4000 income deduction.
Thank you for that clarification. I am absolutely bookmarking that although I think one kid is over the salary limit. This is great for the other kid. I had no idea.