Gifting a Vehicle

Giving gifts to others can be a selfless act in showing your gratitude and appreciation. No matter how big or small the gift is, you end up sharing some joy and love to the person you are giving it to. Just remember though that a gift is only made special when you have wrapped it beautifully with kind thoughts and sincerity.

Supposing that you decided to be as grand as possible with your generosity and you wanted to give someone a car. Maybe your lovely daughter just graduated, your eldest son just got his driver’s license, your relative requires a vehicle, your favorite neighbor just got their first job, your best friend needs some help to get around, you want to buy a newer car, or you simply just need to get rid of your vehicle because you are migrating to another country. What a better way to gift it away and surprise them with a car!

Before you put a big ribbon bow on a vehicle to give it to a loved one, you have to consider if the car that you are giving is a good fit for the one receiving. Here are some things you need to know when gifting a car:

• FINISH OFF YOUR CAR LOANS

Theoretically, you have to be the vehicle’s owner to be able to gift the car or transfer the title. If you still have any unpaid balance on your car loan, you must prioritize paying it off first. You also need to verify that there are no outstanding liens on your car. Once you paid off the vehicle, you are now the rightful titleholder of the car. You may then transfer the title, along with the vehicle, to the new recipient. 

• TRANSFER THE CAR TITLE

The car title is a document that proves the legal ownership of a vehicle. When gifting a car, you must transfer the car title to the new owner's name. To release the car ownership officially, you must head over to your local Department of Motor Vehicles (DMV), bring the requirements, fill out some paperwork, and pay the title transfer fee. Once the recipient now holds the title name, they need to show it when registering the gifted car at their state DMV.

• PROVIDE A BILL OF SALE

Just like buying and selling a car, you may need to write up a bill of sale to protect yourself from future accountability for the car you gifted. The Bill of Sale is a legal document that is utilized between parties to establish the sale and purchase of a motor vehicle. This document will validate and confirm the change of ownership, sales details, vehicle report history, and any known defects. This should include the Vehicle Identification Number (VIN), make and model of the car, the purchase price of the car, and odometer reading. You have to make sure that this bill of sale is duly signed by you and the giftee.

• KNOW YOUR GIFTEE

Owning and maintaining a vehicle can be a big responsibility. As with all things, cars need regular care and maintenance to run properly. You have to make sure that the recipient is financially capable and can afford the car ownership expenses. Some of these expenses may include gas, insurance, maintenance, and repairs. (Click here if you are interested to know how much it would cost to own a car in Chicago.) Aside from the financial duty, the recipient must also be reliable, patient, disciplined, and knowledgeable about the traffic rules and road safety. With this practice, they can be out of harm's way and stay protected while happily driving away.

• INSURE THE GIFTEE

When it comes to driving safety, the best way to get protected is by getting car insurance. You must ensure that the recipient can drive the car legally with car insurance. Having car insurance is essential because it provides financial security and peace of mind in the event of vehicular damage or bodily injuries in a car accident. You may want to help the recipient find a car insurance company with a good rate and have your gifted vehicle signed up for a new policy.

Paying the Gift Tax

A gift or present is something of value that is given willingly to someone without payment or without expecting anything in return. However, gift-givers must pay taxes on some gifts. You may need to pay the tax when gifting a car - a gift tax, which depends on the fair market value of the car. 

A gift tax, as defined by Investopedia, is a federal tax applied to an individual giving anything of value, such as money, car, or property, to another person. The gift tax may range from 18% to 40% and its requirements may differ every year. From 2018 to 2020, the Internal Revenue Service (IRS) annual allowable maximum of a car’s fair market value as a gift per recipient is less than $15,000 for a single individual or $30,000 for a married couple. Meanwhile, the lifetime exclusion rises to $11.58 million in 2020 from $11.4 million lifetime exclusion in 2019.

The annual gift tax exclusion is the maximum amount you can give in any calendar year to an individual without needing to pay gift tax; whereas, the lifetime exclusion or lifetime exemption refers to the certain amount each person can give as tax-free gifts throughout their lifetime without having to pay tax. The lifetime gift tax exemption ties directly to the federal estate tax.

When you exceed the annual exclusion, you need to file a gift tax return using IRS Form 709 - United States Gift (and Generation-Skipping Transfer) Tax Return. For example, you are giving a car that is worth $20,000 in a given year, then you have to file a gift tax return on the extra $5,000 for that tax year. The tax only applies to the amount above the annual exclusion, but you will only pay the tax when you have gifted more than the lifetime exclusion. The value of your taxable gift will just be deducted from your remaining lifetime exclusion by the IRS.

In general, the person giving the gift is always responsible for paying the federal gift tax. The recipients do not owe taxes for accepting gifts, but they may also choose to pay the gift tax.

Exemptions to the Car Gift Tax

Gifting a vehicle with less value than the annual or lifetime limit enacted by the IRS does not incur gift tax. But certain gifts are not subjected to tax and you qualify for exemption if:

• The car was transferred or purchased from a spouse, parent, child, brother, or sister.

• The car was an estate gift for a beneficiary (not a surviving spouse).

• The car was received due to a business reorganization.

Other Non-Taxable Gifts

• A gift to your spouse, no matter what the value is as long as they are U.S. citizens

• A gift to political organizations and charities approved by the IRS

• A gift to cover an individual’s education tuition, if paid directly to the educational institution

• A gift to cover an individual’s medical expenses, if paid directly to the medical facility

Do You Need To Pay Sales Tax on a Gifted Vehicle?

The good thing about gifting a car is that you do not need to worry about the sales tax. Because vehicles received as gifts are not subject to sales tax. Car sales tax is only imposed on the motor vehicles at the time of purchase and this varies by state and location. For example, the Illinois sales tax rate is currently at 6.25%. If you gift a $20,000 worth of the car, you can save $1,250 on sales tax. But then again, if you already own the vehicle, then gifting a car means no sales tax.

After properly completing the different steps required in gifting a car, you can now freely and successfully present it to that special someone. Shining elegantly with a giant red bow, that generous gift of a car of yours will certainly make that special someone's life a little brighter and happier! In return, you will surely get more joy in giving!

Nevertheless, should you decide to steer yourself away from the trouble of doing all the necessary processes or save yourself from paying the gift tax, we offer an alternative option for you. If you want to get rid of your car quickly, why don't you sell your car for cash to Enrique? Assuredly, Enrique is one of the highest paying car buyers in Chicago! You may even give the cash as a gift instead. Aren't you curious as to how much your car is worth before giving it away? Hurry and call us now (224) 236-7010.

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