How to Give a Car to a Relative

How to Give a Car to a Relative and (Maybe) Avoid Sales Tax at the Transfer of Title

Transferring a Free Vehicle Between Family Members

When my son enlisted in the Army several years ago, he gifted his truck to me with the idea that it would eventually go to his younger sister. Gifting cars between siblings and family members is not only a nice thing to do, in many states it is exempted from sales or excise tax providing you have followed a few basic instructions, more information.

Who qualifies as a family member? In most states, family members include close relatives, such as parents, siblings, grandparents, nieces and nephews, aunts, uncles and in-laws. A few states have more restrictive definitions.

Sign the certificate of title

The transfer starts by signing the car’s title (or proof of ownership certificate) which acts as the bill of sale between the two people. Procedures differ between state to state but the basics include the signatures of both the buyer and seller, the date of sale, the odometer reading, and the sales price even if it’s for $0.

Sign the certificate of title

Visit your local DMV website for additional forms

In my state, all we have to do is write “gift” on the line that reads “sales price” and explain at the time of transfer that the vehicle is being gifted between family members. Your state may have different requirements. Where you can find these requirements and restrictions is by visiting your city’s Department of Motor Vehicle website and look for the link that reads something like “gifted title” or “gifted family transfer.”

Some require signatures to be notarized, others may want a bill of sale that clearly states “Gift”, a few may even request a certificate verifying the family relationship. Whatever the requirement, it’s important to follow it exactly since failing to do so may mean that your relative might be hit with estimated sales tax at a latter date based on the car’s Blue Book value at the time of transfer.

To finish up the transfer, your relative will have to bring the signed title, proof of insurance, some cash for the transfer fee, and any additional documents required by your state’s DMV.

The IRS

So what about the IRS you might ask? When it comes to gifted income, people often get a bit confused as to who pays the gift tax. According to the IRS, it’s the donor that has to report the gift and pay taxes only on the portion that exceeds the $14,000 per person allowable annual exclusion. For the relative who is receiving the car, the gift doesn’t need to be reported at all.