Question

Gil borrowed $4,000 as a loan from his mom to pay for his college expenses. His mom told him to he doesn’t have to repay her. What form must be file in the 1040?

Answer 1

Mother will report the transaction to the IRS as a taxable gift to her children.

Gift tax will be applicable even if you are making the gift to your children. The only person who is excluded is spouse.

Thete is a exclusion limit on the gift which generally changes every year. The annual exclusion amount in 2017 was $14000 and in 2018 it is $15000

Payment made to the children for the college expenses does not count towerds the annual limit for the gift tax purpose, but the payment should be made directly to the financial institution. In the given case the amount is given to Gil and not to the College directly.

The Form which need to be filed by Gil Mom is (IRS form 709) gift tax return, Form 709 is an annual return which is due on the April -15 of the year after the gift was made.