Test Your Knowledge of Qualified Transfers
When you gift money to another person, a gift tax may apply, unless there is an annual gift tax exclusion or lifetime gift tax exemption available. To avoid this tax, an alternative option is to give money through a qualified transfer, also known as a non-gift gift. Qualified transfers are not subject to gift tax or generation-skipping tax, and they do not reduce your annual gift tax exclusion or your lifetime gift tax exemption.
True or False?
In 2020, annual gift tax exclusions allow you to gift up to $15,000 without it counting against your lifetime exemption. Qualified transfers, however, are not limited to a specified dollar amount. But they are limited in that they may only be used to pay for tuition or medical expenses.
The key to qualified transfers is that the payment is made directly to the institution or medical provider. If you provide a check to the student or patient to make the payment, it will not count as a qualified transfer and instead may be considered a gift.
- Medical care: The monetary gift must be for qualified medical care, paid directly to the medical provider. Qualified medical care includes medical expenses that are tax deductible. For example, cosmetic surgery is not considered a tax-deductible medical expense.
- Tuition payments: The monetary gift must be for tuition only, and it must be paid directly to the qualified educational organization. A qualified transfer cannot be used to pay for books, supplies, and room and board. Prior to making the direct tuition payment, the student should check with the school to see if this payment will affect any existing financial aid or scholarship he or she has.
Qualified transfers are limited to $15,000 annually per person.