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Author: uhclem One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121147  
Subject: Gift tax implication for repaying student loan Date: 2/21/2000 1:55 PM
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Question for the esteemed tax advice folks:

My father (bless his heart) is considering paying off my student loans. If he pays the debt off directly to the lender (in this case the US Dept. of Education), is this considered subject to gift tax (the amount in question is over 10K).

I understand that payments to cover tuition are not subject to gift tax. Are payments to cover student loans also exempt? If not, what other strategies might be pursued?

Thanks in advance,
Jon
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29691 of 121147
Subject: Re: Gift tax implication for repaying student lo Date: 2/23/2000 9:10 AM
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<<My father (bless his heart) is considering paying off my student loans. If he pays the debt off directly to the lender (in this case the US Dept. of Education), is this considered subject to gift tax (the amount in question is over 10K).>>

I believe so, yes. He's not paying directly for the education. He's paying indirectly by paying off the loan. This "indirect" issue is an important distinction. So that being the case, I believe that the gift tax rules would be in play.

<<I understand that payments to cover tuition are not subject to gift tax.>>

Basically correct.

<< Are payments to cover student loans also exempt?>>

Nope...I don't believe so.

<< If not, what other strategies might be pursued?>>

Have him gift you $10k a year for the next number of years. You pay the loan down at that pace and deduct the interest on your tax return. I'm sure that the loan will be paid in full in no time.

TMF Taxes
Roy


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