Gifting a car to a family member is a relatively fuss-free way of disposing of a vehicle you no longer want while also helping a loved one. Let's explore the process and possible tax implications of giving a car to a relative.
Gifting a car to a family member is a relatively fuss-free way of disposing of a vehicle you no longer want while also helping a loved one. Let's explore the process and possible tax implications of giving a car to a relative.
According to Carbrain, you may or may not have to pay taxes when you give or receive a car as a gift. It all depends on what state you live in. California residents who are gifted a vehicle can apply for a tax exemption at the Department of Motor vehicles. If you live in Florida and you gift a car to a family member, a bill of sale gift or affidavit will exempt you from taxes. If you do have to pay taxes on your gifted vehicle, the state uses the vehicle's fair market value to calculate the amount you have to pay. While some car owners consider selling the car for a dollar instead of gifting it, the DMV gift car process is the recommended, not to mention more legitimate, way to go.
As YourMechanic points out, each state has its own process for gifting a car to a family member. Before you sign the title, you should verify whether or not your state's DMV requires witnesses or notarization.
The circumstances for gifting a car vary depending on the owner and the recipient. YourMechanic notes that it's common to gift a car to a family member who's just obtained their driver's license. The owner may have purchased a new car, and gifting to a family member is the easiest way to get rid of their old one. A medical condition that prohibits the owner from driving can also prompt them to gift their vehicle. Finally, a relative might not be able to afford a vehicle but is desperate for one, and a generous family member could gift their car to help them out.
JP Logistics recommends that before you gift a car, you should consider the recipient's needs and wants. They might not like the car or might be offended by a hand-me-down gift. Be sure that they afford insurance and maintenance costs. If they can't, you might be able to help them in another way. If you're giving the car to someone outside your immediate family, the recipient might have to pay a hefty sales tax. Be sure to discuss the tax implications with the recipient.
According to YourMechanic, the car you're gifting must be paid off so you can obtain the title from your bank or loan company. After you receive the title, review it to see if any lien holders are listed. If there are, contact the holder of the lien to have it removed. If the lien is already paid off, you should be able to complete a discharge of loan at the DMV. Contact your DMV for their specific requirements. In some circumstances, you might have to finance your loan in order to have the lien removed. An outside lender can assist you in that process. If the car is purchased rather than gifted, that will relieve the loan. However, with a gifted car, there are no obligations financially.
If you've inherited a car and the owner listed on the title is deceased, you may need to obtain an order of transfer from the probate court. Some states will allow you to file an affidavit with the Registry of Motor Vehicles. Check with your state's registry to see what the requirements are. If the title lists a married couple as the owners, and one spouse is deceased, the surviving spouse can transfer ownership.
Even if you're gifting a vehicle and have no financial gain in the transaction, you are still obligated to review the terms of the arrangement with the recipient. Make sure that they realize that after they take ownership of the car, they will be responsible for costs like insurance and maintenance. You should also work out who will pay for the taxes and other fees that come with transferring the title. Once you've worked out those details, you can sign over the title to your immediate family member. Immediate family members are grandparents, parents, grandchildren, siblings, in-laws, aunts, and uncles. Step relatives and half-siblings are also immediate family members. If the recipient of the car has a different last name than you, the state will require proof that you're related.
As you're filling out the title, you should list your name as the seller and your relative's name as the buyer. You'll also need to state the odometer reading. You should list the price of the car as gift. Don't forget to sign and date the title. If you don't transfer the car title to the family member you're gifting the car to, the state will still consider you the legal owner of the vehicle. Make sure that every detail is complete because a title is a legal document.
After the title is signed, you should make sure that the new owner has insurance for the car. It's a relatively simple process if your relative already owns a car. Your insurance agent will require extra information if this their first vehicle. Depending on your state's requirements, you may need to take the car to an inspection station for a safety inspection or emissions test. Some states will require an inspection at the time of transfer, even if one has already been completed for the year. You can check the Department of Motor Vehicle's website for your state's requirements.
When you go to the DMV to complete the transfer, make sure to have the following:
After you present those documents and pay the fee, the DMV will issue a temporary registration to the new owner and send them the new title in the mail. Check with the DMV to see if they require additional documents like a Statement of Facts or Affidavit of Transfer without Probate.
After the title is transferred, it's up to the recipient to make sure that the car stays registered in the state of residence. The recipient should receive the title within two weeks and they should make sure that all information is correct. They should contact the vehicle registry if there are any errors. Once your family member has the correct title, they can enjoy their gifted car.
Information and research in this article verified by ASE-certified Master Technician Duane Sayaloune of YourMechanic.com. For any feedback or correction requests please contact us at research@caranddriver.com.
