Legal Question in Tax Law in California

Re: paying off student loans

yes and yes.

You might want to make it a loan, with interest, forgiven at 20,000 per year.

JOEL G. SELIK

800-894-2889

www.taxworkout.com

www.4thelaw.com

There are many reasons not to pay off your student loan at all. These should be examined.

Re: paying off student loans

I concur generally with the previous attorney's reply regarding treating the $60K as a loan from your parents. I recommend that you properly document the loan and you sign and date the loan (much like a promissory note). However, you must pay your parents interest on the amount that you retain each year that is not forgiven debt in a percentage equal to the applicable federal rate (AFR) for long-term debt. Your parents must then account for the payment of this interest on their Federal and state tax returns.

It might be easier if you paid off the loan in three years by your parents gifting you an amount each year as follows:

Year 1: $22,000 ($11,000 gift to you from each parent)

Year 2: 22,000 ($11,000 gift to you from each parent)

Year 3: 16,000 ($ 8,000 gift to you from each parent)

The annual gift amount that is excluded from gift tax has increased from $10,000 per year to $11,000 per year (the annual gift amount does not include your parents' respective lifetime gifting amount of $1 million presently).

As always, I recommend that you seek and retain the advice of competent tax counsel. Good luck.

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