Giving the gift of a car, truck, or SUV is quite generous. On the other hand, receiving a car as a gift is not as simple as it seems. It varies from state to state, and there are better ways to drive a gifted car or sport utility vehicle. Going to the DMV to transfer the title is the best route, but the price of the car will affect taxes.
What happens if they give you a car?
Getting a car as a gift can be complicated. Farm Bureau Financial Services someone gives you a vehicle, make sure you own it. Otherwise, you would be responsible for repaying a loan. Beyond that, you’ll want to make sure you can afford gift tax on any vehicle you’ve been given as a gift.
The internal revenue service has some frequently asked questions about gift taxes. By 2023, someone can gift one person up to $17,000 tax-free. That means if your vehicle has a fair market value of less than $17,000, you don’t have to pay federal faxing for the gift.
“If the fair market value of the car is less than $17,000, you will not have to pay federal tax on a gifted car.”
Farm Bureau Financial Services
“While selling a car for $1 will allow you to avoid capital gains and gift taxes, the recipient of the car will have to pay whatever sales tax rates your state charges on used vehicles when they transfer the title”. Heading over to the Department of Motor Vehicles (DMV) to make sure everything is in place is the best course of action.
Be sure to draw up a bill of sale if you plan to give away a car
You will want to draft a bill of sale to protect both parties. Without this, the donor could still be responsible for the vehicle. Make sure both the recipient and the donor sign. In addition to that, you’ll want to document the car’s make and model, purchase price, vehicle identification number (VIN), and odometer reading at the time of sale.
To officially gift the car, you will need to transfer the title. The DMV can help you do this, but the paperwork is online for your review ahead of time. Make sure you have everything you need before you enter. In most places, you will need proof of identity, proof of ownership, proof of insurance, and completed forms. Fees will vary, so make sure you have the correct amount and form of payment.
For example, Florida charges $75.25 for a transfer or duplicate title, a $2.50 service fee, and a $2 lien recording fee.
You will still need insurance in most states
Even if someone gives you a car, truck, or SUV as a gift, you’ll need insurance in most states. In most situations, you need a valid insurance policy to obtain 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 purchased car to the policy. You can shop around for a quote in cases where you don’t already have insurance.
Either way, congratulations on getting yourself 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 documentation and fees, if applicable.