According to Carbrain, you might have to pay taxes, or not, when giving or receiving a vehicle as a gift. If you get a car as a gift, you will need to pay the gift tax on the vehicle, which is the same as the tax on the sale of the vehicle on the normal basis in many states.
While selling a $1 car would let you avoid capital gains tax and gift taxes, the car receiver would need to pay whatever sales tax rate your state charges for used cars when transferring ownership. The idea of selling a car for $1 is so you can avoid gift taxes, and pay sales tax only on the sale price. The biggest benefit to being a legitimate owner is you will not pay sales tax on a car that is being gifted.
If you do not give your title to the car receiver, the state still counts you as the legal owner of the vehicle. You should finalize transferring your vehicle title to the family member, or else the gifted will continue to be the legal owner. If a friend or family member whom you wish to give a car to lives in a different state, you can give your vehicle to him, but you must comply with that states title transfer laws, which can differ from those of Indiana.
The person you are giving a car to cannot legally register the title in his or her name, nor will they legally be able to drive the vehicle without insurance. The person who is giving a car away will have to fill out the sellers side of the title transfer section, while the person receiving the gifted vehicle will have to fill out the buyers side. You, as the person giving, will present your ID and turn in the car title (after filling out the back part). At this point, you and the recipient of the gift have completed paperwork and paid any required fees required to give a car.
Before the gift recipient goes to register the vehicle, you will all need to complete an Affidavit of Transfer of Gifted Car. One last document that needs to be produced before the gift recipient finally gets their vehicle is proof of responsibility insurance. You cannot finish the car gifting process unless the gift recipient is able to produce proof of insurance. Next, make sure you give your recipient evidence of having paid any sales tax and fees for the vehicle.
If a car is being transferred for gift, note that in your sales invoice, and note the purchase price is $0. If the person listed as owner of the initial car is not the seller, a bill of sale must also be provided to show the car has changed ownership. If you are receiving the vehicle, you must move the title and registration into your name within 10 days after the gift date.
Whether it is because you have just purchased the car or received the car as a gift, you need to be sure you are following the Golden State rules on changing ownership in a timely fashion. If you are giving the vehicle away as a gift or giving it away to charity, you will have to inform Californias DMV about transferring vehicle ownership within 5 days of the date the gift was given. If you are buying a car, boat, quad, or snowmobile from another individual who is not a licensed car dealership with the California Department of Motor Vehicles, or you are receiving a car as a gift, be sure you obtain acceptable proof of ownership. A DMV-licensed automotive dealer must obtain acceptable proof of ownership of the vehicle before it may sell the vehicle to you.
Once you submit these documents and pay a fee, the DMV issues the car recipients a temporary registration and mails him or her the new title. If you are giving the car as a gift in California, the recipient may request an exception from taxes when he or she visits the DMV to obtain a new title to the vehicle. For example, if you are gifting a car in California, the $15 title transfer fee must be paid, along with any applicable taxes.
Most states actually do impose gift taxes when a cars market value is $15,000 or higher ($30,000 for married couples). According to the IRS, you can gift any person up to $17,000 in 2023 without having to pay a tax on the gift, meaning if the cars fair market value is less than $17,000, you do not owe a federal gift tax on a vehicle. According to YourMechanic, the car you are giving should be paid off, so that you can get a title from the bank or lending institution. This way, not only are you sure that your gif-tee gets the exact vehicle that they wanted, you are protected against any potential financial or legal issues down the road.
Make sure they understand that once they have taken possession of the vehicle, they’ll be responsible for costs such as insurance and maintenance. The recipient of the gift will have to go through their insurer to add the vehicle to their policy. The last step of the gifting process is making sure that the vehicle is covered by at least the minimum vehicle insurance required by Washington.
