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Is paying off a co-signed student loan considered a gift?

November 5, 2012: 6:30 AM ET

I am a co-signer of my daughter's private college loans for a balance of $65,000. I have been paying the minimum requirement each month but I have come to realize that she is unlikely to be able to pick up these payments on her own, so I will be paying these loans at an accelerated rate. Should I consider my payments a gift? Will this affect the student loan interest deduction on my federal return? — Ron L.

As cosigner of the loan, the debt is a joint liability, and therefore it is your obligation along with your daughter's to pay it off. "Because it is your debt, it cannot be considered a gift," says Janet Hagy of Hagy & Associates, an accounting firm in Austin, Tex.

That said, you can claim any interest that you pay on a qualified loan on your tax return, up to $2,500. The IRS provides information on student loan interest deduction in chapter four of its Publication 970, found at irs.gov.

— Austin Kilham

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Posted in: Family Money, Taxes
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