Gift tax and college tuition

[CathyNJ]

What is the name of your state? New Jersey

My mother recently sold her house and decided to give me and my children a gift of $12,000 each. In addition she wants to pay our college tuition. Since we all both taken out student loans, I was wondering if that is considered a "Qualified Tuition Program". These loans were handled through the financial aid department at the college. From what I have been reading about form 709, neither of these gifts need to be reported. Is this correct?

[anteater]

Originally Posted by CathyNJ

What is the name of your state? New Jersey

My mother recently sold her house and decided to give me and my children a gift of $12,000 each. In addition she wants to pay our college tuition. Since we all both taken out student loans, I was wondering if that is considered a "Qualified Tuition Program". These loans were handled through the financial aid department at the college. From what I have been reading about form 709, neither of these gifts need to be reported. Is this correct?

This is somewhat confusing. How do the student loans fit in?

Tuition paid directly to an educational institution on someone else's behalf does not count as a gift toward the annual gifting limit.

[CathyNJ]

The tuition is not being paid directly to an educational institution, but rather a college loan company that the college has recommended.

Originally Posted by anteater

This is somewhat confusing. How do the student loans fit in?

Tuition paid directly to an educational institution on someone else's behalf does not count as a gift toward the annual gifting limit.

[xylene]

Originally Posted by CathyNJ

What is the name of your state? New Jersey

My mother recently sold her house and decided to give me and my children a gift of $12,000 each.

That is not a gift that needs to be reported.

In addition she wants to pay our college tuition. Since we all both taken out student loans, I was wondering if that is considered a "Qualified Tuition Program". These loans were handled through the financial aid department at the college. From what I have been reading about form 709, neither of these gifts need to be reported. Is this correct?

Paying TUITION (current, past due or future) is not a taxable gift.

Paying off LOANS that have been used to pay tuition is a gift. (Thru financial aid makes no difference.)


KEEP IN MIND

Needing to file a gift tax return does NOT mean any gift tax is OWED

In addition to the 12,000 per person per year, your mother has a very large lifetime exemption. Your mother could in all likelyhood easily pay off the college tutition costs and loans without haveing to pay a cent of gift tax. (and probably have a LARGE amount of her lifetime exemption remaining).

Also the liftime gift tax exemption, this is seperate from the estate tax exemption!

Consult with a tax proffessional and an estate planner.

Don't let assumptions about gift taxes stop Mom from getting the satisfaction from her money that she deserves.

[CathyNJ]

Thank you so much for you advice!

Originally Posted by xylene

That is not a gift that needs to be reported.



Paying TUITION (current, past due or future) is not a taxable gift.

Paying off LOANS that have been used to pay tuition is a gift. (Thru financial aid makes no difference.)


KEEP IN MIND

Needing to file a gift tax return does NOT mean any gift tax is OWED

In addition to the 12,000 per person per year, your mother has a very large lifetime exemption. Your mother could in all likelyhood easily pay off the college tutition costs and loans without haveing to pay a cent of gift tax. (and probably have a LARGE amount of her lifetime exemption remaining).

Also the liftime gift tax exemption, this is seperate from the estate tax exemption!

Consult with a tax proffessional and an estate planner.

Don't let assumptions about gift taxes stop Mom from getting the satisfaction from her money that she deserves.

[anteater]

Originally Posted by xylene

Also the liftime gift tax exemption, this is seperate from the estate tax exemption!

Maybe I am misinterpreting what you are saying, but the lifetime gift tax credit and the estate tax credit are still unified even though the credit amounts are different. Using up part or all of the lifetime gift tax credit reduces the available estate tax credit.

[xylene]

Originally Posted by anteater

Maybe I am misinterpreting what you are saying, but the lifetime gift tax credit and the estate tax credit are still unified even though the credit amounts are different. Using up part or all of the lifetime gift tax credit reduces the available estate tax credit.

That is indeed true, however as the unified credit for gift taxes is less than what is availible for states, it is impossible to exhaust the estate tax credit by gifting. (1 M gift, and 2.5 Estate OR 3.5 Estate...)

There is an exhaustive publication explaining exactly how these credits work (IRS Publication 950)

However, concerning the OPs situation, her mom should not worry that thru gifting she will automatically owe gift taxes, or by using her gift tax exemption she will then have an hefty estate tax bill (unless her estate is well above the top 0.2% of estates.)

I also firmly believe I am only providing a general overview of the situation, and that the MAXIMUM tax advantage can be had by having Mom consult with a tax proffession who is familiar with her situation and wants to help her derive satisfaction from her money while she is alive, not this often touted "wait-til-death" routine of some estate planners.

As if avoiding paying some tax is a better outcome than enjoying money while alive...

I call that the "smiling from heaven" school of tax planning, and as someone who does not believe in an afterlife, I can see that as it is, just part of a sick scheme by some estate planners to justify higher feess 'cause mom pays no tax... Nothing like being dead and tax free..

That is however a huge digression, I am just glad to be able to give the OP some general guidance to get started.