8 steps to take when giving a car as a gift

1. Make sure you own the car

This one might seem obvious, but you need confirmation that you own the car free and clear. Did you get a car loan when you bought the vehicle as a new car or used car at a dealership? If so, there’s a lien on the car title until you completely pay it off. When you do pay it off, the lienholder or lender should send you proof that the lien has been discharged and you can go about getting a new title in your name.

Other reasons you might have a lien on your car include unpaid parking tickets or borrowing money against the car to cover repairs. Regardless you will want to make sure that you own the title and their are no liens on it before putting a bow on the gifted vehicle. You can discover if there is a lien on the car by searching the vehicle identification number.

2. Ensure that the car is in good working condition

Unless you’re donating the car to a charity as a junker, it's crucial to ensure that the car you're driving is in good working condition. Regular maintenance and inspections help catch any potential issues before they become major problems.

• Check the tire pressure

• Test the brakes

• Make sure all fluid levels are good

• Inspect exterior, including headlights and taillights

These are all part of ensuring a safe and smooth ride. Remember, taking care of your car will not only keep you safe, but it will also prolong the lifespan of your vehicle and help whoever you’re giving it to avoid costly repairs down the line.

3. Create a bill of sale

Even if you’re selling the car for a sales price of zero, you still need to draft this document. The bill of sale identifies you as the previous owner and identifies the name of the new owner. This document protects you from anything that happens with the car after it leaves your possession.

The bill of sale should include:

• Odometer reading at time of sale

• Date of transfer

• Fair market value of gifted vehicle

4. Understand the state's title transfer process

Whether you are selling a vehicle or transferring ownership to a family member, understanding your state's title transfer process is essential. This will usually be done at the Department of Motor Vehicles (DMV). Each state may have slightly different requirements for vehicle titles, so it's important to do your research.

Generally, you will need to do all of the following:

• Fill out a certificate of title transfer form

• Bring the original title

• Pay applicable fees

• Provide identification documents, ie driver’s license

• Provide proof of insurance or smog check if required by your state

Title transfer fees can vary depending on the state, the value of the vehicle and other factors. By familiarizing yourself with the process and fees, you can ensure a smooth and efficient transfer of car title at your local DMV.

5. Assign the title to the new owner

As part of the vehicle transfer process, you need to create the title’s application. This document includes the details of the gift receiver, driver’s license, etc.

There will be a section to fill out for the purchase price of the used vehicle. In that section, you will enter “Gift.”

6. Fill out affidavit of motor vehicle gift transfer

Before the giftee can ride off into the sunset in their gifted car, there’s a bit more paperwork that has to happen. In order for them to register the vehicle in their name, you will both have to fill out an Affidavit of Motor Vehicle Gift Transfer form. (You can find this by searching online for this term + your state).

While the form varies slightly from state to state, it will generally ask you for:

• The personal information and contact information of the legal owner

• Your relationship to the giftee

7. Make sure all tax forms are in order

Depending on the value of the car and the state where you reside, you may owe a gift tax on the vehicle. In some states, there is a nominal gift tax regardless of the value of the vehicle.

According to Kelly Blue Book: "As of January 2023, gift tax rules apply if the vehicle’s fair market value is over $17,000. Gifts exceeding the $17,000 annual exclusion count against your lifetime exclusion, which currently is $12.92 million."^[1]

Make sure to thoroughly research your state laws and fill out any applicable IRS forms to avoid a complicated tax situation later.

8. Have the recipient register the car and get car insurance

Before the owner of the new vehicle can drive their car away, it is important to ensure that it is properly registered and insured. The new owner is responsible for obtaining the vehicle registration under their name and paying applicable registration fees.

Likewise, unless the giftee resides in the same house as you, they will need to obtain auto insurance under their own policy. You can encourage them to shop around to choose the best insurance company for their needs.