Updated September 21, 2020: You may decide to gift a vehicle if your child received their drivers license. Or perhaps you can no longer drive for medical reasons or want to help a family member in dire need. Regardless of why you decide to gift a vehicle, there are a number of requirements and steps you need to take before handing over the keys.
Heres what you need to know about gifting a vehicle.
An ebook to eread while youre eprocrastinating eeverything eelse. Download Finance Your Future today.
1. You must own the vehicle outright
You cant gift a vehicle or transfer its title unless you own it outright. So, if you still owe money on a vehicle, youll have to wait to gift it until you pay it off. If the vehicle is paid off, contact your bank or dealers lending department to confirm the full payment.
2. Consider the giftees finances
Will the person you gift the vehicle to be able to afford the insurance, fuel, maintenance and repair costs that come with owning it? (Here are some other hidden costs to buying a car.) Ask yourself whether youre willing to cover these costs for them. If the answer is no, you may want to rethink your decision to gift them a vehicle.
3. The giftee may have to pay a gift tax
The good news? Gifting a vehicle means no sales tax. But the person giving the gifted vehicle to may have to pay a federal gift tax. You will need to file a federal gift tax return if you gave any gifts that exceed the $15,000 annual exclusion, but you dont actually have to pay gift tax unless you have also exceeded your lifetime exclusion, which is $11.78 million in 2021.
4. Writing up a bill of sale
If there is no contract for the gifted vehicle, you may still be liable for the car. Avoid this situation by writing up a bill of sale and making sure you and the giftee fill out the appropriate sections. The bill of sale should include the following details:
- Make and model of the vehicle
- Purchase price of the vehicle
- Odometer reading
- Your signature and the signature of the person youre gifting the car to
5. Youll be required to transfer your vehicle title
By transferring your vehicle title, youre releasing ownership of the vehicle to the person youre gifting it to. The easiest way to transfer your vehicle title is to go to your local DMV, fill out the necessary paperwork and pay a fee. Since vehicle title transfer laws and fees vary by state, get familiar with your states laws.
6. Youll need to insure the giftee
Make sure the giftee is properly insured to drive the car. They will be unable to drive the car legally without car insurance.
If the giftee already has car insurance, they can contact their insurer and add the vehicle to their existing policy. If they are a new driver or dont have insurance, theyll need to shop around for the best rate and sign up for a new policy.
Correction, June 24, 2021: This article originally misstated how gift tax was assessed on vehicles. It's been updated to note that because of the lifetime gift tax exclusion, few people will end up paying gift tax.
Image: Morse Collection
Free in your inbox each Friday.