Bill has a 13-year-old niece, the daughter of his sister. Bill’s sister has discussed her concern that the local public school is not particularly good. Bill’s sister is a widow and has few assets, and he has previously helped his sister and Jessica. Bill has agreed to pay tuition for Jessica to attend the swanky Newberry Academy, which is $36,000 per year. Jessica started to attend in fall 2017, and Bill has transferred $36,000 in September 2017 to his sister to cover the tuition. He mentions this now as he is giving you the information for the 2017 tax return for him and Nadine.
What is the tax result for the 2017 gift?
What do you recommend for 2018-19 tuition?
Gift received by her sister will not be taxable in her hands as income from other sources because sister comes in defination of relatives.
Although he will not be allowed deduction for tution fees paid for her niece in 2017.
It may be recommended that he should pay tuition fees directly to Newberry academy and claim deduction as tuition fees. He should also show that as her sister is widow, he is paying expenses of her sister's daughter as same as just like her daughter. He may do so by adopting her sister's daughter for the purpose of claiming deduction.
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