Gifting a car to a family member or a friend in the United States entails some legal and financial obligations. Here is the process of settling them. There are many reasons why might decide to gift a car to a family member or friend. Perhaps you have a child who is graduating and needs a set of wheels. Or perhaps a close friend is struggling financially and needs a means of transportation. Regardless, you must understand how to gift a car properly in the United States. Not only will this ensure that things go down smoothly, but doing so ensures you are protected as the giver of the gift.
Thankfully, in this guide, we will cover everything you need to know about gifting a vehicle! Let us first look at a few things to consider before starting the process of gifting a car. Then, we’ll explain each step for doing so in detail. Lastly, we will examine if it is possible to sell a car for $1 instead of gifting it, and whether doing so is worth it or not. Let’s get started right away!
Before Gifting A Car – Consider These First
Is The Car You’re Gifting Paid Off?
If another party holds a claim to the vehicle that you want to gift, you will have to remove them first. We’re talking about a bank loan, meaning if there’s money still owed, you’ll have to pay it off free and clear. With a lienholder showing on the title, you’ll have to get a letter from the bank saying the loan has been satisfied. You will then take this letter to the DMV and request a new title. If there is no lienholder listed, then you’re free to continue the process of gifting a car.
Can The Giftee Afford Owning A Car?
There are a lot of unexpected costs of owning a vehicle. Some of these include insurance, gas, maintenance, and general wear and tear. If the person you’re planning to gift your car to can’t afford these, you might reconsider doing so.
Can You Afford To Pay The Car Gift Tax?
One great thing about gifting a car is that the receiver doesn’t have to pay any sales tax on it. However, most states do charge a gift tax if the market value of the vehicle is $15,000 or more ($30,000 for a married couple). Some states, such as Florida, don’t charge a gift tax. Meaning if you’re gifting a car in Florida, the only additional costs are the title and registration fees. How much will gift tax add?
Well, it typically sits somewhere between 18%-40%, so it’s a good idea to make sure you’re prepared to spend that much before gifting a car to a relative or friend. We suggest visiting the DMV website to research what your state charges.
Does The Giftee Have Insurance?
You can’t complete the process of gifting a vehicle if the giftee can’t provide proof of insurance. Thankfully, it’s as simple as having the receiver call an insurance provider and creating a policy (or adding it on to an existing one). If the receiver is a child or family member, you can also add them to your own policy, though, you should be aware of the risks involved first.
You want the process to go as smoothly as possible, obviously. Thankfully, if you’ve reviewed the above items, you should be good to go. Let’s now examine the steps to properly gift a car in the United States.
How To Gift A Car
Step #1 – Come To An Agreement With The Giftee
Just because you’re gifting a car to a relative or friend, doesn’t mean you shouldn’t discuss the logistics first. Some of these include figuring out who will pay the DMV fees and gift tax (if applicable), if they have insurance, and if they can afford to own a car.
For example, gifting a car in California requires that a $15 title transfer fee be paid, as well as any applicable tax. Will you be paying for this? By working the details out in the beginning, you ensure the process goes down smoothly.
Step #2 – Write Up A Bill Of Sale
A bill of sale is a legally binding document that shows that a transfer of goods took place between two or more parties. As the person giving the gift, you absolutely want to fill one of these out to ensure you’re protected should an issue come up down the road. A bill of sale should include the following:
- Make and model of the car being gifted
- Purchase price of the vehicle
- VIN (vehicle identification number)
- Current odometer reading
- Signature and date of all parties involved
Some states require that you sign a bill of sale in the presence of a notary public. These include:
- New Hampshire
- West Virginia
Step #3 – Transfer The Title Into Their Name
With all of the above completed, you’re ready to head to the DMV office and complete the gifting process. Keep in mind, though, that some states may have you go to a separate tax office to finish up. The giftee will need to provide a valid license and proof of insurance. You, as the person gifting, will show an ID and hand over the title of the vehicle you’re gifting (after filling out the back section). Finally, one of you will pay the fees (which you should have already discussed per our advice), and you’ll sign the vehicle over.
Instead Of Gifting My Car – Can I Sell It For $1?
The idea behind selling a car for $1, is that you can avoid gift tax, and only pay sales tax on the sales price. However, when deciding between gifting a car vs. selling it for $1 in California (as an example), know that the amount owed in sales tax is based on the market value, not the sales price. Since most states start charging gift tax on cars with a market value of $15,000 or more, anything below this amount is usually better to gift. Above $15,000, and it is best to do the calculations yourself concerning the best outcome for both parties.