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.
All gifts, including cars, can be subject to a tax paid by the giver. There are annual and lifetime gift tax limits that can mean you won't have to pay.
Taxes on Gifting a Car
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.
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 2018, the threshold is $15,000, up from $14,000 in 2017. That limit is per giver and per recipient per year. Gifting a vehicle 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.
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 2018, the gift giver can give a car valued at $30,000 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.
Gifts from one spouse to another are also always tax exempt, so you'll never owe tax for buying your spouse a car or any other present. If you give a car or anything else to a charitable organization, that not only doesn't incur tax, it can be tax deductible.
No matter who you give valuable gifts to, make sure and keep records demonstrating it's value and when the gift was given. The tax implications of giving away a car aren't the only legal considerations, so make sure that you work with your state's motor vehicle agency to properly transfer title to the vehicle.
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.
2018 Gift Tax Limits
2017 Gift Tax Limits
As of 2017, $14,000 in gifts per giver and recipient pair per year are exempt from federal gift tax. The lifetime gift tax exclusion for 2017 was $5.49 million.
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.