My clients, H and W, have already given their adult daughter $15,000 each. The medical bill are beginning to be significant and would significantly reduce their child’s tax liability if the additional funds (in excess of $15K each) would be given to the Child and she pays the medical expenses.
Could the parent pay the expenses directly to the medical providers so a gift tax return is not required AND the child claim the medical expenses as a deduction? Or would they be double dipping and this is not allowed. ie Maintaining their lifetime exemption and getting a medical deduction on their daughter’s tax returns.
Although the medical expense payments would not count toward the gift tax exclusion, the daughter would not be able to claim the deduction because she did not pay the medical expenses. However she may be able to claim the deduction if she signs a promissory note to pay back the parents, see Rev. Rul. 78-173.