Is a gifted check trackable?

Submitted by deadeadeadeadea t3_zzf3um in personalfinance

My husband used to talk about going to grad school and his grandfather generously gifted him a check that I believe was around $10,000 4-5 years ago, apparently had to do some taxes differently, and says the money is trackable by the irs and cannot be used on anything other that school tuition. Is this true?

I am asking because my husband now does not want to go to grad school and my MIL says that this will create problems for my grandfather-in-law.

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pancak3d t1_j2b9rus wrote

This is 100% false and was probably said just to scare him into using it wisely

The exception would be if the grandfather had a 529 account for son and cut a check from it

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russ257 t1_j2biph4 wrote

Ignore the question of the law. There are other moral dilemmas at play. Grandpa gave your husband that money to use for school. If he no longer wants to go to school he should call grandpa and tell him so and give the money back. If grandpa then refuses the money and says spend it on what you like then you are clear. If grandpa wants it back then you give it back because it was never really your to do whatever you want with.

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lam91897 t1_j2ba1e4 wrote

If the money came out of a 529 account that had been set up by the grandfather and it was not used for school the grandfather would have to pay taxes on amount.

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DeluxeXL t1_j2baedb wrote

> My husband used to talk about going to grad school and his grandfather generously gifted him a check that I believe was around $10,000 4-5 years ago, apparently had to do some taxes differently, and says the money is trackable by the irs and cannot be used on anything other that school tuition. Is this true?

No, it's not true.

If someone pays your tuition or medical bill directly, it is considered a gift to you, but it is completely unlimited in any regard.

If someone gives you money with no expection of getting anything back, it is a gift and has reporting thresholds. Maybe the reporting threshold was $10k Reporting threshold was $14k in 2017. But there is no restriction what the recipient can use it for.

Maybe it was actually a 529 distribution?

  • No limit for college/university tuition expenses
  • Up to $10k can be spent for K-12 tuition expenses (SECURE Act 1.0)

This still doesn't restrict what the recipient can use it for. It'll just get the 529 owner in tax penalties if used for disallowed purposes.

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penguinise t1_j2b9z7u wrote

A check is simply a written authorization of a transfer from the account number of the check. To the degree that all bank transfers are recorded by banks, they are "trackable".

You need to learn a lot more information about what is going on here, in particular on what account this check is drawing. Also, as a general note, surprise depositing a check 5 years after it is written without talking to the account owner is, at a minimum, terrible etiquette. Many banks may refuse to honor a check that is more than 180 days old.

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deadeadeadeadea OP t1_j2babxq wrote

Thank you. The money is already in my husband’s account. His family is just telling us that the money is trackable by the irs and that it can only be used at a school for tuition

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penguinise t1_j2bgxr1 wrote

If the check was deposited into an individual account in his name (not an exempt trust like an IRA, Section 529 account, etc.) then it is his money, free and clear, and is indistinguishable for tax purposes from any other money he may have.

Any tax consequences that may or may not have been due the grandfather for giving his grandson that money were incurred when the check went into an ordinary account, and in that year.

Any plausible tax issue would derive from whether he spent that amount on education in that year. It's moot now.

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g92592 t1_j2fblhu wrote

It's been years. No one is tracking anything with the exception of your husband's family

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Deezy1414 t1_j2b7rkz wrote

To my belief it isn’t. You are allowed to gift I believe 18k a year to an individual tax free. Even 4-5 years ago I couldn’t see the irs raising that limit 8k.

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t-poke t1_j2b881e wrote

Sigh, this oft-repeated myth rears it’s ugly head again…

You can gift something like 12 million dollars tax free in your life.

Any gift exceeding $16,000 in a year has to be reported to the IRS on the gift giver’s tax return but they will not be taxed on it. They just want to know about it.

The recipient never has to report anything.

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FuelHaulinAss t1_j2b7txy wrote

I believe you can gift up to 14,500 per calendar year non taxed. The IRS website is your best resource.

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dequeued t1_j2c536g wrote

The limit is much much higher than that due to the lifetime exemption. Read the gifts wiki for more information.

Also, the annual exclusion is now $16,000. That's effectively just the limit for the giver to avoid filing a form.

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