How Does Being Gifted a Car Affect Taxes?
Giving the gift of a car, truck, or SUV is quite generous. On the flip side, being gifted a car isn’t as straightforward as it seems. Laws vary from state to state, and there are better ways than others to go about handling a gifted vehicle. Going to the DMV to transfer the title is the best route, but the price of the car will impact the taxes.
What happens if you are gifted a car?
Being gifted a car can be complicated. Farm Bureau Financial Services someone gifts you a vehicle, make sure it is owned outright. You would be responsible for paying off the car loan otherwise, or the title will not be able to be transferred to you. Beyond that, you’ll want to make sure you can afford to pay the gift tax.
The Internal Revenue Service has some frequently asked questions on gift taxes. For 2023, someone could gift an individual up to $17,000 without having to pay taxes. That means if your vehicle has a fair market value of under $17,000, you don’t have to pay federal faxes on the gift.
“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.”
– Farm Bureau Financial Services
“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.” Heading to the Department of Motor Vehicles (DMV) to ensure everything is in place is the best course of action.
Be sure to draft a bill of sale if you plan to gift a car
You’ll want to write up a bill of sale to protect both parties. Without this, the gifter could still be responsible for the vehicle. Make sure the giftee and the gifter sign. On top of that, you’ll want to document the make and model of the car, the purchase price, the vehicle identification number (VIN), and the odometer reading at the time of sale.
In order to officially gift the car, you’ll need to transfer the title. The DMV can help you do it, but the paperwork is online for review ahead of time. Make sure you have everything needed before heading in. In most places, you’ll need proof of identity, proof of ownership, proof of insurance, and the completed forms. The fees will vary, so ensure you have the right amount and way to pay for it.
For instance, Florida charges $75.25 for a transfer or duplicate title, a $2.50 service fee, and a $2 lien recording fee.
You’ll still need insurance in most states
Even if someone gifts you a car, truck, or SUV, you will need insurance in most states. In most situations, you need a valid insurance policy to get a new vehicle registration. The amount of insurance you need depends on where you are, as these minimums vary by state.
If you already have insurance on another vehicle, you should be able to add your newly acquired car to the policy. You can shop around for a quote in instances where you don’t already have insurance.
Either way, congrats on being gifted a car. Some taxes and fees are associated with such a gift, but nothing too outrageous. Check your state’s DMV site for the correct paperwork and fees if those apply.
