Gifting a Car to a Family Member & Taxes on a Gift Car

gifting-a-car-taxes

Wouldn’t it be nice if someone just gave you a car? The fact is that it happens across the United States thousands of times on a daily basis. Maybe it’s gifting a car to a family member as a reward for finishing school or gifting a car to a relative who’s down and out. Most of the time, the gift car is staying within the immediate or extended family.

Is gifting a vehicle something you’d like to do, but you’re not sure of the process? How do you go about it, and do you have to pay taxes on a gift car? You also always have the option to sell a car for cash and just buy them a car. Read on to see how gifting a car stacks up.

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How to Gift a Car

There are two things you need to address when you’re giving a car as a gift: ownership, and insurance. Neither is overly complicated but you need to make sure it’s done properly.

Transferring Ownership

If you’re gifting a car to someone, the first step is to make sure you legally own the vehicle. What’s involved is a lien check – this will indicate if anyone else is claiming a stake in the vehicle. If the lien check comes back clear, you’re free to proceed with gifting a car.

Next, the gifter needs to complete the title transfer document, usually found on the back of the title itself. You must complete the transfer car title to a family member, otherwise the giver will remain the legal owner. Don’t skip any of the details because it’s a legal document and it matters. And for goodness sake, print legibly!

The recipient takes the title down to the DMV to complete the title transfer. But wait – it’s not that easy! For some states, additional documents are required like a Statement of Facts or an Affidavit for Transfer without Probate. You’ll need to check with your state’s DMV to source any forms or additional information you need before a transfer can be completed. Frustrating at times, yes. But it’s necessary to make it legal.

Proof of Insurance

In addition to transferring ownership into the gift recipient’s name, the DMV will likely require proof of insurance. It’s not usually a complicated process. The recipient will need to contact their insurer to add the vehicle to their policy. Some states might not require it, but it’s still a good idea to get it done as soon as possible.

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Do You Pay Taxes on a Gift Car?

Are there fees for receiving a gift car? Yes, most likely. There’s going to be a title transfer fee or registration fee, and perhaps a smog check fee or something like it. But do you pay taxes on a gift car when you receive it? Is it even possible to "sell a car without tax" so to speak?eeee

It depends where you live, quite honestly. If you got a car as a gift, you’ll need to pay car gift tax just like regular car sales tax in many states. If you’re gifting a car in California, the recipient can apply for a tax exemption when they visit the DMV to get new plates for the car. If you’re gifting a car in Florida, a bill of sale gift or an affidavit is all you need to avoid paying the taxes.

Can You Avoid the Car Gift Tax?

How to Gift a Car

Some car gifts are still quite valuable vehicles, and the tax is typically calculated on fair market value for the car. That can mean a hefty sum to pay when you go to the DMV. You might wonder about the value of gifting a car vs selling for $1. The theory is that a $1-dollar sale will have taxes calculated on that purchase price, not the car’s value. But the DMV isn’t going to be fleeced that easily – the DMV gift car process is the better way.

Whether you got a car as a gift or you’re looking into giving one away to a family member, the process isn’t clear-cut everywhere. It could take a bit of time to get it all figured out. And if the car involved is older, doesn’t run well, or needs repairs, you might start to wonder if it’s worth the hassle.

CarBrain Buys Cars in Any Condition

Good on you for checking out how to gift a car. But if you just want the easiest way to get rid of a car, CarBrain is an awesome solution. You’ll get a fair offer for your car in as-is condition. No need to feel guilty about giving an unreliable car to a family member, we’ll pay you cash for your car in just a couple days, and if you want, you can give the cash away instead! Check out how much you car is worth before gifting that car.

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