When someone asks to borrow your car, all you need to do is hand over the keys, give them a curfew, and tell them to drive safely. But if you want to give that car to someone permanently as opposed to loaning or selling it, there are a few more steps involved. Luckily, the process is straightforward and far less complicated than you might think, and we have some answers to any questions you might have about how to gift a car.
You’ll want to make sure you’re giving the right car to the right person—an old truck with bad fuel economy won’t be useful to someone with a long commute, for instance. If you have a vehicle that’s a good fit for someone in need, here are the details you need to know before delivering that generous gift.
Pay Off Existing Loans
If you still owe money on the vehicle you want to give away, you must pay it off first. Until then, the financial institution that issued the auto loan still owns the car (even though it’s sitting in your driveway). Once you pay off the vehicle, the financial institution will send you the vehicle title, which you can then transfer, along with the vehicle, to the recipient. They will need the certificate of title to prove the vehicle legally belongs to them when they go to register their new car at their state department of motor vehicles (DMV).
Transfer the Title
Check with your state’s DMV to verify title-transfer requirements. In most cases, the person gifting the car will fill out the seller’s portion of the transfer section on the back of the title. This usually asks for an odometer reading for the gifted vehicle and the driver’s license number of the previous owner. The person receiving the car will fill out the buyer’s portion. Where it asks for sale price, you can simply write “gift.” Both parties will also need to sign the car title to make the transfer of ownership official, which some states require to be done in front of a witness, and someone will have to pay the title transfer fee. If you own the vehicle outright but can’t find the title, your local DMV can issue a replacement.
After the recipient takes over the title, they’ll need to acquire insurance. Once they have proof of insurance, the new owner can take it with the vehicle’s title to the state DMV, register the vehicle in their name, and get a new title declaring their ownership. As with car sales, it's typically the new owner who pays registration fees, but you can opt to reimburse the recipient if you want to go above and beyond.
What About Gift Tax?
No one has to pay sales tax when receiving a gifted vehicle, but the person giving the car away may have to pay a gift tax, depending on the value of the car. If the car’s fair market value is less than $15,000 (the maximum the IRS allows as a gift as of 2019) when you give it away, you will not have to worry about taxes, but if it’s more than that, you will. For example, if the value of the vehicle is $25,000, you will have to pay a gift tax on the extra $10,000. You can use the CarGurus Instant Market Value calculator to get an estimated value for your car.
There are a few loopholes you can utilize when it comes to taxes. For married couples, both spouses can give away up to $15,000 in a year, so you could jointly give a car worth up to $30,000 without having to pay taxes on the value of the vehicle. You can also defer the gift tax using the unified tax credit. This credit gives every individual an estate tax exemption, and as of 2019, that exemption is $11.4 million. That means you can gift up to $11.4 million worth of cash or assets during your lifetime before additional gifts become your estate’s tax liability after your death. In order to take advantage of the unified tax credit, you will have file a gift tax return using IRS Form 709.
The Bottom Line
Giving a car to someone is fairly simple, but it does require more than a giant red bow and a new set of keys. If you take care of a few details and make sure the car is the right fit for the recipient, without question, the generous gift of a car could make a huge difference in the life of the lucky friend or family member on the receiving end.