- You may have a child graduating from school or a relative in need of a vehicle. Whatever the reason, there may be a time in your life when you’d like to gift a car.
- The first step to gifting a car is owning it outright – you’ll have to pay for the car in full or finish paying off your auto loan before giving the vehicle away.
- You’ll also have to insure the car in the giftee’s name and find out if you’re required to pay a gift tax.
- Read more personal finance coverage.
There may be a time in your life when you’re feeling extra generous and want to gift a car. Maybe your child just received their driver’s license or your best friend is struggling financially and needs a way to get around.
Since gifting a car is a bit different than simply buying a car for yourself, make sure you do the following before putting a big bow on a vehicle and gifting it to a loved one.
How to gift a car
Pay off your car loan
You won’t be able to gift a car or transfer a title if you don’t own a car outright. So, if you have an outstanding balance on your car loan, focus on paying it off and reach out to your lender once you do to ensure you’re good to go and own it free and clear.
Think about the giftee’s financial situation
If you gift a car to your child, parent, friend, or anyone else, they’ll need the cash to pay for insurance, gas, maintenance, and repairs. If they can’t afford these common car ownership expenses and you don’t want to cover them yourself, you may want to reconsider gifting them a car.
Make sure you can afford to pay gift tax
If you gift a car, you may be responsible for paying gift tax on it. While the requirements differ every year, for 2019, a gift tax is necessary if the fair market value of the car is more than $15,000 for a single person or $30,000 for a married couple. The gift tax can be anywhere from 18% to 40%.
Don’t worry about sales tax if you already own the car
One of the greatest perks of gifting a car is that you don’t have to pay sales tax on it if you already own it. Although car sales tax varies by state, it’s often a large chunk of change. For example, if the car sales tax in your state is 10% and you gift a $20,000 car, you can save $2,000 on sales tax. Of course, if you buy a car and then gift it, you will have to pay sales tax on the initial purchase.
Write up a bill of sale
Without a bill of sale or contract in place, you may still be responsible for the car you gifted. To protect yourself, write up a bill of sale and make sure it’s signed by you and the giftee. Your bill of sale should include:
- Make and model of the car
- Purchase price of the car
- Vehicle Identification Number (VIN)
- Odometer reading
Transfer your car title
To officially release ownership of your car to the person you’re gifting it to, you must transfer your title. You can do this by heading over to your local DMV, paying a fee, and filling out some paperwork. Check your state’s laws to learn about title transfer laws and fees.
Insure the giftee
Of course, your giftee can’t legally drive your car unless they are covered by car insurance. If they already have it, all they have to do is reach out to their car insurance company and add your gifted vehicle to their current policy. If they don’t have car insurance, you may want to help them find a good rate and sign up for a new policy.
As long as you follow these steps, you can successfully gift a car and make someone’s life a little brighter.