Can a Cosigner on a pay off student loan without incurring gift tax

[Poiuk23]

I have an existing student loan. If a cosigner were added to the loan, would they be able to pay over $16,000 without triggering the Gift Tax? 

[rjs]

For 2022 the annual gift tax exclusion is $16,000. That means that someone can give you gifts totaling $16,000 for the year and they do not have to report it. They do not have to file a gift tax return or pay any gift tax.

Even if someone gives you more than $16,000, they would have to file a gift tax return, but they would not have to pay any gift tax unless their total lifetime gifts to all recipients is more than $12 million.

So if someone wants to pay off your student loan for you, they can just give you the money. They don't have to cosign the loan.

You cannot use TurboTax to file a gift tax return (Form 709).

[Opus 17]

If you had a co-borrower from the start, paying the loan off would not be a gift because they were a borrower.  However, if you are the only borrower and someone wants to help you pay off the loan, I think adding them as a co-signer would be viewed as a "fig leaf" to disguise what is really happening, and the IRS doesn't do fig leaves.  If it's a gift, it's a gift.  However, as mentioned, even though a gift tax return may be needed, payment of gift tax is very rarely required. 

[SweetieJean]

Sounds like the proposed cosigner might want to deduct the interest paid on the loan.

[rjs]

The cosigner would not be able to deduct the interest unless the student was the cosigner's spouse or the cosigner's dependent at the time the loan was taken out. For a cosigner added after the original loan was made, it's not clear whether the requirement that the student was the cosigner's dependent "when you took out the loan" means when the original loan was made or when the cosigning occurred. The IRS rules don't discuss the possibility of a cosigner being added to an existing loan. The cosigner trying to deduct the interest, presumably without a 1098-E, is just asking for trouble.

The whole cosigning scheme is just not going to work.