Question about Gift Tax

April 25, 2014 3:48 PM

Regarding the gift tax, the IRS indicates that a gift does not count against the annual exclusion ($14,000), and is not taxable against the giver, if it is gifted towards a tuition payment. Would this also be the case if it was gifted to pay a student loan for someone directly to their lending institution?
posted by SpacemanStix to Work & Money (6 answers total)

Best answer: Eh, I don't think it's all that complicated, stoneweaver. The question boils down to asking whether student loans, like tuition or medical expense payments, are exempt from the gift tax. The answer so far as I am aware is NO, it is not exempt and must be taken against the exclusion.
posted by Justinian at 4:38 PM on April 25, 2014

Best answer: Oh, SpacemanStix, you may know this already based on your question and the stipulation you make about the student loan payment being made directly to the lender but the tuition payment must also be made directly to the institution. You can't give the money to the student and have it be exempt.
posted by Justinian at 4:39 PM on April 25, 2014

Best answer: No, that's a taxable gift that would use unified credit.
posted by jpe at 4:43 PM on April 25, 2014

Best answer: Just a few additional clarifications:
-the annual exclusion is per person (so a married couple, like one's parents for example, can give $28k to a single individual or $56k to a married couple); and
-gifts over the annual exclusion must be reported on a gift tax return but do not incur tax until the giver has used up his unified credit

So, unless the giver plans to gift/bequeath over $5 million-ish in their lifetime (or at death) they really don't have to worry about gift tax.
posted by melissasaurus at 6:05 PM on April 25, 2014 [1 favorite]

Response by poster: Many thanks, everyone. Very helpful. I was a little bit surprised at how much discussion is spent on the annual exclusion in places, but not as often on the unified lifetime credit, which seems to be pretty important to the whole thing.
posted by SpacemanStix at 10:04 AM on April 26, 2014

The reason is that the annual exclusion issue is a Right Now thing, while the lifetime credit won't be considered until after the individual is dead. Since that can be 20 or 40 years hence, and no one can safely predict that far into the future, it gets less attention.
posted by megatherium at 12:03 PM on April 26, 2014 [1 favorite]