Cars are an everyday necessity for most of us. They’re our tickets to roadway adventures and the average 9-to-5. But you may be thinking that it’s time to pass on your vehicle to someone else. Maybe there’s an excited new driver in your life, and you want to help them get started with a car of their own.
Gifting a car can be worthwhile, but it takes some planning. Here’s what you need to know before handing over the keys.
HOW DO I GIFT A CAR?
Gifting a car is a multi-step process. Knowing what actions to take will help make it a smooth one. Here are three crucial steps.
MAKE AN ARRANGEMENT WITH THE GIFTEE
While gifts are nice, they can sometimes take us off guard. If your giftee isn’t in the position to accept the car, it can put you in a difficult spot. So, think about talking to them. Work out who will pay certain fees and if the receiver can afford the gift (including the insurance).
WRITE A BILL OF SALE
A bill of sale is a type of legally binding document that acts as your contract. It records the details of transfer and without it you may still be responsible for the car. So, you should make sure that you and the person receiving the car fill out the necessary information.
A bill of sale should include:
- Make and model of the car
- VIN (Vehicle Identification Number)
- Present odometer reading
- Purchase price of the car
- Both parties’ signature and the date of signing
TRANSFER THE TITLE
Once you have the contract squared away, you can go to your local DMV. This is the easiest way to go about the transfer. Simply fill out some paperwork and pay a fee—your giftee now owns the car.
Keep in mind: laws can change between states. So, familiarize yourself with your local laws before going to the DMV.
HOW LONG DOES IT TAKE TO GIFT A CAR?
The process varies from case to case. Generally, it depends on how quickly the giver and receiver get their affairs in order. However, things will go much faster if you have all the logistics figured out ahead of time.
WHAT IS INVOLVED IN GIFTING A CAR?
There are a few matters you may want to consider before you go through with the transfer. You already know the technical side and the type of document you need, i.e., the bill of sale. But you also need to figure out whether you and your recipient can afford the gifting.
Vehicles come with a range of costs, from gas to insurance to maintenance repairs. Making sure the receiver can afford these charges is part of your job. On the other hand, you also have to check if you can handle any expenses on your end. Gifting a car can come with taxes and fees that you may be responsible for. So, review your financial situation before making any decisions.
Overall, getting everything in order before you head down to the DMV will avoid any confusion or mishaps.
ARE THERE ANY IMPLICATIONS OF GIFTING A CAR?
Gifting a car can get messy if you’re not careful. For the giver, however, there is probably one thing, in particular, they should note.
If you choose to gift a car, you may have to pay a gift tax on it. This is a tax that applies to any individual who transfers property or assets to another and expects to receive nothing in return. This can also apply if you sell something for less than the market value, or how much money it would typically exchange for on the market.
Gift taxes have the potential to change, so it’s important to check the rules beforehand. For example, let’s say you gift a car during the year 2021. According to the IRS, if the fair market value of the car is more than $15,000, you will have to pay a gift tax. The tax starts at 18% but increases incrementally up to 40% as your gift’s value increases