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Is cosigner paying off a loan a gift?
Old 10-07-2008, 07:19 AM   #1
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Is cosigner paying off a loan a gift?

Time for me to sound like a spoiled brat.
My parents contacted me yesterday and offered to pay off half my student loan balance, or about $55,300.

That pays off exactly 3 of my individual loans. One of them my dad is a cosigner for. I know gift tax rules apply to the other amounts, but since he is a cosigner, does gift tax even apply to that? I'm not trying to skirt taxes, but if he doesn't need to include that when he reports the gift I don't want him to. BTW, I doubt he has to worry about breaching the $1 mil lifetime exclusion anyway, this probably isn't going to matter.


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Old 10-08-2008, 08:17 PM   #2
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no expert, but if dad is equally liable for that particular loan, i.e. fully joint liability as a co-signer, it would seem to be a loan payoff, nothing more.
dh2b and i share a joint credit card, and pay it off from a joint checking account. i don't consider that a gift arrangement.
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Old 10-08-2008, 08:43 PM   #3
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If you had the benefit of the loan and Dad pays it off I consider that a huge gift. Don't know about the tax end.
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Old 10-08-2008, 08:47 PM   #4
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Gifts are not the recipient's tax issue, it is the giver's issue, with gifts in excess of $12,000 in one year requiring a gift tax return by the giver. Parents together can give up to $24,000 in one year with no return needed. Even if a return is filed, that does not mean a tax is paid. The gift amount likely will just come off the estate tax exemption.

Money for education can be exempt from the gift rules, but I don't know if paying off student loans would fit the exemption.

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Old 10-08-2008, 09:12 PM   #5
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The answer I got from a CPA is that by default IRS the considers a cosigner to a loan paying it off for the main borrower (this is my language) a gift. He added that if the parent can legitimately argue they always considered it their obligation and intended to pay it off and does, not counting it as a gift should be acceptable.

I suggested to my dad that he either split the gift between years or use some of his lifetime exemption. I don't want him going into something that isn't black and white with the IRS for my benefit. (I know he owes the tax, not me, but it is because of/for me)

Just to make sure I'm not misunderstood, I do consider this to be a huge personal gift, my only concern is making sure the tax part is handled right.
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Old 10-08-2008, 09:28 PM   #6
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I agree with others that this would be considered a gift and would have tax consequences for your parents. If I were in your shoes, I would recommend they each gift you $12,000 in 2008, and come January 1st, 2009, gift you another $12,000 each.

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