If you’re fortunate enough to be in a position to gift a car to a family member or friend, it’s important to understand the process, requirements and tax implications. These are the are the five things you need to know about gifting a car:
Gifting a Car 101: You Must Own the Car Outright
You can’t gift a car or transfer a title if you don’t own the car outright. If you have an outstanding balance on a loan, you will want to focus on paying it off. After it’s paid off, reach out to the lender to ensure you’re good to go.
Gifting a Car 101: Make Sure You Can Afford the Gift Tax
Depending on where you live and who you’re giving the car to, you may be responsible for payinga gift tax. If you do have to pay taxes on your gifted vehicle, the state uses the vehicle's fair market value to calculate the amount you have to pay.
How much is gift tax on a car?
It depends. Requirements can differ every year, so you’ll want to check to see the limit required for the tax.According to the IRS, you can give any individual up to $17,000 in 2023 without you having to pay any tax on that gift, which means that if the fair market value of the car is under $17,000, you won’t have to pay a federal tax on a car gift.
Can you sell a car for $1? In short, yes. But while selling a car for $1 will allow you to avoid capital gains and gifts taxes, the recipient of the car will have to pay whatever rate of sales tax your state charges on used vehicles when they transfer the title. While some car owners consider selling the car for a dollar instead of gifting it, the DMV gift car process is the recommended, not to mention more legitimate, way to go.
Gifting a Car 101: Draft a Bill of Sale
Without a bill of sale or contract, you could still be responsible for the car. To protect yourself, draft a bill of sale and make sure you and the giftee sign it. Your bill of sale should include:
- Make and model of the car
- Purchase price of the car
- VIN
- Odometer reading
Gifting a Car 101:Transfer the Car Title
To officially release ownership, you have to transfer the title. You can do this at the local DMV. It will require some paperwork and comes with a fee. Make sure to check with your state’s law to learn about the title transfers and fees.
Gifting a Car 101:Keep the Car Insured
Of course, the giftee can’t legally drive the car unless they have itcovered by car insurance. If they already have an auto insurance policy, they just need to call their insurance company or agent and add the vehicle to the current policy. If they don’t have car insurance, you can help them find a localFarm Bureau agentto get a policy.
Neither the Company nor its agents or advisors give tax, accounting or legal advice. Consult your professional advisor in these areas.
