Gifted Car Quick Tips
If someone has given you a car, there are some steps you’ll need to take to retain ownership legally. Whether you plan to keep the vehicle and start driving it right away or you want to sell an inherited car for cash, this guide will help you follow the due process.
Details will vary according to local laws and mandates. Additionally, the process may be more complicated if the grantor and the recipient are in different states. Consult your local department of revenue to confirm the specifics surrounding inheriting a car.
Verify Ownership
The first step is to make sure the bestower truly owns the vehicle. To legitimately transfer ownership, the giver must fully own the car with any loan paid off. There can be no liens or other legal claims on the asset. You can verify ownership by reviewing the physical title. Ensure the vehicle identification number (VIN), make, model, name, and address are correct.
Draft a Bill of Sale
Even if someone is giving you a car, there should still be a paper trail outlining the initial transfer of ownership. A bill of sale can help protect both parties if there’s an issue verifying the agreement in the future.
The person gifting the car and the recipient must both sign this document, and it should include the vehicle’s make, model, and VIN. Additionally, have the current odometer reading and the vehicle’s sale price (set to $0 in the case of a gift or if you inherited a car).
Transfer the Title
Next, as the recipient, visit your local Department of Motor Vehicles (DMV) to apply for a title in your name. Submit the bill of sale as proof of ownership and pay the fees associated with the title transfer. You may also need to provide proof of insurance and a passing emissions inspection report. Once the title transfer is complete, the car is yours and your responsibility.
Gift Tax
According to the Internal Revenue Service (IRS), a gift tax is assessed on “the transfer of property by one individual to another while receiving nothing, or less than full value, in return.” While all givers must disclose gifts over a certain amount, the good news is that most people will never need to pay the tax.
As of January 2023, gift tax rules apply if the vehicle’s fair market value is over $17,000. Gifts exceeding the $17,000 annual exclusion count against your lifetime exclusion, which currently is $12.92 million.
Let’s say you gift a car worth $25,000 to your cousin. The extra $8,000 ($25,000 – $17,000) counts toward your lifetime exclusion. You’ll need to file a gift tax return even though you won’t owe taxes until you exceed the lifetime gift threshold. Taxes can be tricky, so we recommend consulting your tax professional when you’re thinking about gifting a car.
In most cases, you can give someone a car, and the recipient is not responsible for a tax on the vehicle’s value like they would if they purchased the automobile.
Inheriting a Car When Someone Dies
If you inherit a car when someone dies, you should contact an estate lawyer for legal advice on how this process works in your state. Laws may differ if you live in a different state than the deceased:
- Review the will. Confirm how the deceased person’s assets (including the vehicle) will be distributed. The court will appoint an administrator to handle the estate if a will is not in place.
- Transfer the title. Once the probate process is complete and you’re legally confirmed as the rightful vehicle recipient, you must transfer the car’s title. Complete the required title application forms and submit them to your local tag office with the following documents: the original title in the deceased’s name, certified inheritance documents, a copy of the deceased’s death certificate, transfer documents from the probate court or executor, and applicable title fees.
- Pay the inheritance tax. While there is no federal tax on inherited assets, some states will assess tax on a vehicle that was willed to you. Confirm these details with your local tax office and review your payment options.
Read Related Articles:
