Does Giving a Car as a Gift Affect Taxes?

Gifting a car can cause a gift tax unless a legal exception applies.

male hand holding car key with new black car in background image by .shock from Fotolia.com

Giving away any type of property triggers the possibility of gift tax just as gifting money would. Fortunately, some exceptions exist to dodge the tax. The gift tax for giving a car is determined by the value of the vehicle. It's also important to note whether the gift giver and recipient are single individuals or couples.

Giver Pays

The gift giver is responsible for paying any gift tax. Recipients don’t owe taxes for accepting gifts. A recipient owes income tax only if a car is given in exchange for services. But, the recipient of a car given solely out of generosity by the gift giver incurs no taxable income. The gift giver encounters gift tax rules for having transferred the car and received nothing in return. A gift also occurs when the giver receives any payment of less than the fair market value of the car.

Annual Exclusion

No gift tax is owed by a person who gives anyone gifts that have total value of less than the annual threshold established by the Internal Revenue Service. As of 2012, the threshold is $13,000. Giving a car with less value than this limit does not incur gift tax. However, gift tax applies if other gifts are given during the year by the same individual to the same recipient that cause total giving – including the car – to exceed the annual limit.

Split Gifts

The annual gift tax exclusion applies to a single person’s gifts to one individual. Therefore, a car valued at twice the annual exclusion escapes gift tax if given to two recipients, such as a married couple. For 2012, the gift giver can give a car valued at $26,000 without incurring tax. In addition, a married couple has twice the annual exclusion when giving a car they jointly own to one individual. The couple can jointly give a car valued at $26,000 and not owe gift tax. A car given by a couple to another couple valued at up to $52,000 in 2012 isn’t a taxable gift.

Lifetime Exclusion

Gift tax rules are also controlled by estate tax. A person has a lifetime amount he can exclude from gift tax instead of using it as an exclusion from estate tax. Therefore, when giving a car worth more than the annual exclusion, the gift giver can use some of his lifetime exclusion when filing his gift tax return. By using some of his lifetime amount to avoid gift tax, a smaller portion of his estate is excluded from estate tax upon his death.

Photo Credits

  • male hand holding car key with new black car in background image by .shock from Fotolia.com

About the Author

Brian Huber has been a writer since 1981, primarily composing literature for businesses that convey information to customers, shareholders and lenders. Huber has written about various financial, accounting and tax matters and his published articles have appeared on various websites. He has a Bachelor of Arts in economics from the University of Texas at Austin.

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