The Complete Guide to Gifting a Car: What You Need to Know

Giving a car as a gift is a wonderfully generous gesture that can make a huge difference in someone's life. Whether you're helping a new grad get on their feet, supporting a family member in need, or surprising your partner with a dream ride, gifting a vehicle is a powerful way to show you care.

But while handing over the keys may seem straightforward, there are a few legal and financial hoops to jump through to transfer car ownership officially. Don't worry - the process is simpler than you might think. In this guide, we'll break down everything you need to know to gift a car smoothly and legally.

First Things First: Is Your Car Gift-Worthy?

Before we dive into the nitty-gritty of how to gift a car, it's worth considering whether your vehicle is the right fit for the intended recipient. A car is a major gift, so you'll want to be sure it aligns well with their needs and lifestyle. A few questions to ask:

• Is the car reliable and in good mechanical shape?
• Does it get decent fuel economy for their typical driving habits?
• Is it a practical size and style for their day-to-day needs?
• Will the maintenance and insurance costs be affordable for them?

You'll also want to be sure the car is free and clear of any loans or liens before attempting to transfer ownership. If you still owe money on an auto loan, you'll need to pay that off in full to obtain the vehicle title and complete the gift process.

Step 1: Transfer the Title to the Recipient

In the eyes of the law, a car belongs to whoever is listed on the vehicle title. So to legally gift your car, you'll need to sign the title over to the recipient through a process called title transfer. Here's how it typically works:

1. As the gifter, fill out the "seller" portion of the title transfer section, including the odometer reading.
2. Have the recipient fill out the "buyer" fields with their information. For the sales price, you can put $0 or simply write "gift."
3. Both parties sign and date the title. Some states require this be done in front of a notary or witness.
4. The recipient takes the signed title to the DMV to apply for a new title and registration in their name, paying any applicable fees.

Title transfer requirements do vary by state, so be sure to check with your local DMV for the specifics. If you've misplaced your title, you'll need to apply for a duplicate before you can complete the gift transfer process.

Step 2: Get the Car Insured and Registered

Once the title is signed over, the car legally belongs to the recipient - but there are still a few administrative tasks to square away. Namely, the new owner will need to:

• Get the vehicle insured in their name. Most states require proof of insurance before registering a car.
• Register the car with their state DMV and obtain new license plates. This can typically be done at the same time they apply for the new title.
• Pay any applicable sales tax, registration, or plate fees. As the gifter, you can choose to cover these costs for the recipient if you wish.

Once the recipient has the car titled, insured, and registered in their name, the gifting process is complete from a legal standpoint. But there may still be some tax implications for the giver to navigate.

Potential Tax Implications of Gifting a Car

While the person receiving a gifted car doesn't have to pay sales tax on the transaction, the gifter may be subject to a federal gift tax if the vehicle's value exceeds a certain threshold. As of 2021, the annual gift tax exclusion is $15,000 per recipient. So if your car's fair market value is below that amount, you likely won't owe any gift tax.

If your car's value is above the annual exclusion, the amount over $15,000 could be subject to gift tax. However, you may still be able to avoid paying it by applying the gift toward your lifetime exemption. As of 2021, individuals can give away up to $11.7 million in gifts over the course of their lifetime tax-free. Just be sure to report gifts over the annual exclusion on IRS Form 709 so it counts toward your lifetime limit.

If you're married, you and your spouse can each gift up to $15,000 per recipient annually. So if your vehicle's value is $30,000 or less, you could jointly transfer ownership without triggering a gift tax. Of course, every situation is unique, so it's always best to consult with a tax professional before making a high-value gift.

The Bottom Line on Gifting a Car

Giving a car as a gift is a relatively straightforward process from a legal standpoint. By transferring the title, helping the recipient register and insure the vehicle, and doing your due diligence on potential gift taxes, you can ensure a smooth and successful transfer of ownership.

Of course, if you want to gift a car but don't currently have a suitable vehicle to give, you can always sell your existing car and gift the cash instead. Tools like Motorvero's Get Cash Offer make it easy to get a guaranteed offer on your vehicle quickly, with no drawn-out sales process. Once you have the funds in hand, you can present them to your loved one to put toward their perfect new ride - and maybe even spring for a giant red bow, too.