Which gift is exempt from gift tax?

Which gift is exempt from gift tax?

• A. Payment for books for a grandchild
• B. Direct payment of room and board to a university for a grandchild
• C. Direct payment of tuition to a university for a grandchild
• D. Payment to a child to cover the costs of anticipated medical expenses

Answer: (C)

Gifts paid directly to a provider of education or medical care can be exempt from gift tax. When you write a check directly to a university for someone’s tuition, that payment is not counted as a gift for tax purposes, and it is not subject to the gift tax or the annual exclusion limits. That’s why a direct tuition payment qualifies. Paying for books is still a transfer to the grandchild and would count toward any gift tax rules. Room and board paid directly to a university isn’t exempt, since the rule specifically covers tuition. For medical costs, the exemption applies only if the payment goes directly to the medical provider; paying the child to cover medical expenses would be a taxable gift. So the direct tuition payment to the university is the exempt gift.

Gifts paid directly to a provider of education or medical care can be exempt from gift tax. When you write a check directly to a university for someone’s tuition, that payment is not counted as a gift for tax purposes, and it is not subject to the gift tax or the annual exclusion limits.

That’s why a direct tuition payment qualifies. Paying for books is still a transfer to the grandchild and would count toward any gift tax rules. Room and board paid directly to a university isn’t exempt, since the rule specifically covers tuition. For medical costs, the exemption applies only if the payment goes directly to the medical provider; paying the child to cover medical expenses would be a taxable gift.

So the direct tuition payment to the university is the exempt gift.