If you have arrived at this article, you are likely looking to transfer a car to a family member or friend and are wondering how much is gift tax on a car?
The answer is that while the IRS requires disclosure once the gifted car value exceeds $18,000 (Up from $17,000 in 2023), you will often owe no actual gift taxes on the vehicle thanks to high exemptions.
That being said, there are still some potential pitfalls to avoid, so I created the article below to walk you through everything you need to properly gift a car and handle related tax documentation according to federal and state rules.
Helpful Video on Youtube: https://youtu.be/1Lfj7Jm0-3w?si=FCfUxdACBTKDB8op
We will cover key aspects like:
- Federal gift tax annual exclusions and lifetime limits
- Steps for transferring vehicle ownership and title to the recipient
- State-by-state sales and gift tax implications
- Mistakes to avoid, like “selling” the car for $1
- File a gift tax return if the car exceeds $18,000 but you usually don’t pay gift taxes
- Transferring title involves forms like the vehicle title, death certificate if inherited
- State gift and sales taxes vary – some exempt family-gifted cars
Table of Contents
Federal Gift Tax Rules and Exclusions
The IRS requires disclosing vehicle gifts above $18,000 in 2024 but few people end up owing gift taxes. Here are the key thresholds:
|First $18,000 per recipient is excluded (up from $17,000 in 2023)
|Amounts over $18k offset $13.61 million cap (up from 12.92 million)
- So a $25k car gift means you file a Form 709 return and count the extra $7k to the lifetime exclusion.
- The lifetime exclusion is high, so most filers don’t pay federal taxes.
- Inherited cars have no federal tax, but check state rules
- Capital gains taxes can apply if the recipient later sells the gifted vehicle
Always confirm specifics with a tax professional when gifting valuable assets!
Important Notes: The gift tax rate is 40% on amounts exceeding your lifetime exclusion, and Married couples can use their spouse’s lifetime exclusion as well, effectively doubling the amount they can gift tax-free to $27.22 million in 2024
State Gift Tax and Sales Tax Rules
While federal gift taxes rarely apply, you must still follow your own state regulations:
- In California and some states, sales tax exemptions only exist for gifted cars between family
- Indiana, Illinois, and five no-sales-tax states have no taxes on gifted cars
- Use affidavits or bills of sale to avoid taxes in states like Florida
Check with your state Department of Motor Vehicles (DMV) for current requirements.
Transferring Title and Registration of the Gifted Vehicle
Once any taxes are addressed, complete these key steps to transfer ownership:
- Review titling procedures in the state where car is registered
- File title transfer paperwork with the DMV including:
- Original title in giver’s name
- Inheritance paperwork if relevant
- Death certificate if inherited
- Transfer docs from courts/executor
- Pay applicable DMV title fees
Consult an estate planning attorney if inheriting a vehicle to navigate state-specific laws.
Gifting a Car vs. Selling for $1
Based on the search results, it is generally not recommended to sell a car to a family member for $1 instead of gifting it. Here’s a summary:
Key Reasons Not to Sell for $1
- The recipient will likely still have to pay sales tax based on the car’s fair market value, not the $1 sale price. So there is no tax advantage.
- It often requires just as much (if not more) paperwork and process as gifting the car. There is no simplification.
- It could be seen as tax evasion by the DMV and does not follow legitimate processes.
The search results recommend simply gifting the car and following your state’s procedures for titling and registering a gifted vehicle. Key advantages:
- Recipients can often avoid paying sales tax on a gifted car. Saves them significant money.
- It is a legal and straightforward process when done properly.
- Shows clear intent that it is a gift, not a sale.
So, in summary, selling for $1 rarely provides any real benefits over gifting and has some downsides.
With some preparation on both federal and state gift tax rules, you can successfully gift a car to family without owing taxes or risking legal issues during the ownership transfer process. Connect with the right tax professionals to handle the required documentation.
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Legal Disclaimer: This article provides general information about gifting a car and related tax implications. The information presented does not constitute legal or tax advice and should not be relied on as such. Consult a qualified tax professional or attorney regarding your specific situation and all applicable federal, state, and local laws and regulations.