1. Home
  2. Taxes General Forum
  3. Excess gifting

Excess gifting

I'm just wondering what would happen in this case.

A parent wants to give as much as possible to an adult child, up to the gift limit. On January 1st, the parent gives the child the limit ($12,000).

In March, the child has expensive dental work (say, $5,000). The parent pays the dentist the $5,000. That doesn't count, because it's paid directly to the service provider, right?

Then the child's dental insurance company reimburses him $4,000.

What is the tax effect? (Note that the parent might not even know that the child has dental insurance.)

Seth

Reply to
Seth
Loading thread data ...

No, not right. I think there is a special rule for college tuition, but aside from that it's generally not true.

Depending on the age and financial status of the child it might be considered support rather than a gift.

The parent should file the gift tax return if it is a gift rather than support. That's it.

Stu

Reply to
Stuart Bronstein

formatting link
7815,00.html

There are some exceptions to the tax rules on gifts. The following gifts generally are not taxable and do not count against the annual limit:

Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone's benefit

The child should return the 4k to the parent. Since the child is an intermediary of the transfer, there is no tax. I cannot find anyplace in the code to support this, but it sounds right. Then parent could then return the 4k to the child and file a gift tax return for the 4k.

The cleanest thing is to have the insurance company make the 4k check out to the parent.

If the child does not return the 4k, then the 4k is like a recovery item (ie, like recovery of a deduction in a prior year) so would have to be recorded as Other Income.

Reply to
removeps-groups

How is it a recovery item?

1) The parent, who paid the expense and took the deduction, didn't receive the recovery. 2) The child, who took no deduction, does not log the reimbursement as a recovery since there's no expense incurred by him to recover.

Related issues: The parent should have deducted only $1k - as the amount not compensated by insurance. The other $4k is neither income-tax-deductible nor a gift. How is the child filing the insurance claim for $5k (to get the $4k reimbursement) if he didn't pay the expense in the first place?

The child may have other income of $1k - but NOT as a recovery item (see above). It's not an excess gift because the parent has no control over the child's insurance company (or choice thereof).

Reply to
D. Stussy

The parent didn't deduct anything. His goal is to transfer money to his child, not to reduce his income tax. Nor is the child his dependent, and his total medical is way under the 7.5% haircut.

The dentist filed the insurance paperwork.

Seth

Reply to
Seth

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.