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One of the best gifts you can give a college graduate is money to help with their outstanding student loans. Unlike payments made directly to educational institutions for a student’s tuition payments, financial gifts to cover student loan balances are not always tax-exempt. Here are some ways to help a graduate pay down student loans without incurring gift taxes.

Be a Co-signer on Loans

Whenever you give a large sum of money to another person, you, as the donor, are responsible for paying the gift taxes owed. However, there are exceptions to gift-tax requirements, including when the donor of the cash gift is a co-signer on the loan being paid down.

If you co-signed a loan for another person’s educational expenses, you’re as responsible for the debt as the student who was the recipient of the loan. When you’re a co-signer on a student’s educational loan, you can pay off the entire amount for the student without incurring any gift taxes.

Give Only the Yearly Maximum 

Gift taxes apply only to the amount of cash you give that’s over the Internal Revenue Service’s yearly gift limit. As long as you keep your cash amount lower than the annual exclusion limit, your monetary gift is not subject to any gift taxes.

In 2019, the tax-exempt gift limit set by the IRS is $15,000. You can avoid paying the gift tax and help a graduate knock down their student debt by giving them the maximum allowable amount of non-taxable gift cash for several years in a row.

Make Separate Gifts from Each Parent 

Under the gift tax rules of the IRS, each parent of a student is treated as an individual. As individuals, each parent may give the maximum tax-exempt amount to their child without paying any taxes on the gift.

In 2019, two parents may each give $15,000 to a graduate without paying the gift tax. Your child can receive up to $30,000 total in tax-free cash from both parents this holiday season to help pay off their student loans.

 Enlist Family Members and Friends to Help 

Grandparents, aunts, uncles, and other family members are allowed to give tax-free gifts of cash to help pay down student loans. As long as each family member gifts an amount under the maximum amount of nontaxable cash to a graduate, none of the generous family members must pay gift taxes.

If four relatives of the graduate give the maximum yearly amount of $15,000 to help the graduate pay down their student loans, that equals $60,000 in gift cash that incurs zero tax burden. That’s a significant amount of money to help reduce an outstanding student loan balance.

Talk to Your Accountant or Tax Attorney

Under the unified tax credit established by the IRS, each person has a lifetime cap on the number of assets they may give to other parties before the gifts are subject to gift taxes. The unified tax credit helps people with significant assets avoid taxes on both gift and estate taxes.

In 2019, the gift and estate tax exemption applies to transferred assets up to $11.4 million in value. Talk to your accountant or tax attorney to learn more about using the unified tax credit to lower or eliminate gift tax burdens when giving cash.

Your financial professional helps you and your gift recipients stay within IRS guidelines whenever you give away assets including cash. Always consult an expert before you transfer holiday or special-occasion cash to a graduate, student, creditor, or educational institution.