Any tax consequences for paying parents back for college tuition?

[eapparet]

I am several years removed from college and am independent per my personal taxes.  My parents helped pay for a portion of my college tuition at the time, and during that time I was claimed as a dependent on their taxes.  If I wanted to pay back my parents for their portion of my tuition are there any tax consequences, particularly if the amount exceeds the annual gift tax exemption (assuming it would be considered a gift).  For sake of example, say my parents paid $50k for my college tuition.  If I wanted to pay that amount back in one or two years, would there be tax considerations for either me or my parents?  Would it even be considered a gift?  Thanks!

[Hal_Al · Accepted solution]

It is considered a gift. There is no income tax ramifications of making a gift. Gifts are not taxable or reportable by the recipient, or deductible by the giver.

If you gave more than the gift tax exemption, you would be required to file a gift tax return. "Gift Tax" is somewhat of a misnomer.  Even though a gift tax return may be required, very few people ever actually pay federal gift tax. The purpose of the gift tax return is usually only to document a reduction in the allowable estate tax exemption.

See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/...

But since the estate tax laws are subject to change and you have a long time to go, it would probably be worth your effort spreading the gifts out and avoiding filing the gift tax returns. At $28,000 per year ($14,00 for each parent), you could pay back $50K in two years. You can give them $14K each now and $14K each in January and not be required to file a gift tax return.

[eapparet]

Thanks, Hal_Al.

[tmsrtf2007]

If someone pays your tuition and you pay them back, why is that a "gift"?  Why can it not be a reimbursement?

[SweetieJean]

@Hal_Al  What if the parents took the Tuition and Fees deduction or the AOC?

[Hal_Al]

tmsrtt2007- For income tax purposes,  reimbursement is still a gift or repayment of a loan. There is no  income tax consequence. if you want to call it a loan, to avoid filing a gift tax return, you will probably be OK; it depends on the details and time interval.

SweetieJean - The parents were allowed to claim the tuition credit or deduction, because he was their dependent at the time., even it there had been a formal loan agreement between the parents and student. If a student paid tuition with a student loan, from a bank, the  parents could still claim the tuition credit.  In a personal loan, the parent is essentially a 'co-signer", since they will have to eat it, if the student doesn't pay it back.