What to know about gifting a vehicle

By

Anna Baluch

Anna Baluch

Blog author Anna Baluch

Anna Baluch is a freelance personal finance writer who enjoys writing about personal finance topics including mortgages, retirement, insurance, and investing. Her work can be seen on LendingTree, Business Insider, Experian and other well-known publications. Anna lives in a suburb of Cleveland, Ohio and holds a bachelor’s degree in marketing. You can contact her on LinkedIn.

Published September 9, 2019|2 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our

editorial standards

and how we make money.

News article image

Updated September 21, 2020: You may decide to gift a vehicle if your child received their driver’s license. Or perhaps you can no longer drive for medical reasons or want to help a family member in dire need. Regardless of why you decide to gift a vehicle, there are a number of requirements and steps you need to take before handing over the keys.

Here’s what you need to know about gifting a vehicle.

1. You must own the vehicle outright

You can’t gift a vehicle or transfer its title unless you own it outright. So, if you still owe money on a vehicle, you’ll have to wait to gift it until you pay it off. If the vehicle is paid off, contact your bank or dealer’s lending department to confirm the full payment.

2. Consider the giftee’s finances

Will the person you gift the vehicle to be able to afford the insurance, fuel, maintenance and repair costs that come with owning it? (Here are some other hidden costs to buying a car.) Ask yourself whether you’re willing to cover these costs for them. If the answer is no, you may want to rethink your decision to gift them a vehicle.

3. The giftee may have to pay a gift tax

The good news? Gifting a vehicle means no sales tax. But the person giving the gifted vehicle to may have to pay a federal gift tax. You will need to file a federal gift tax return if you gave any gifts that exceed the $15,000 annual exclusion, but you don’t actually have to pay gift tax unless you have also exceeded your lifetime exclusion, which is $11.78 million in 2021.

4. Writing up a bill of sale

If there is no contract for the gifted vehicle, you may still be liable for the car. Avoid this situation by writing up a bill of sale and making sure you and the giftee fill out the appropriate sections. The bill of sale should include the following details:

  • Make and model of the vehicle

  • Purchase price of the vehicle

  • VIN

  • Odometer reading

  • Your signature and the signature of the person you’re gifting the car to

5. You’ll be required to transfer your vehicle title

By transferring your vehicle title, you’re releasing ownership of the vehicle to the person you’re gifting it to. The easiest way to transfer your vehicle title is to go to your local DMV, fill out the necessary paperwork and pay a fee. Since vehicle title transfer laws and fees vary by state, get familiar with your state’s laws.

6. You’ll need to insure the giftee

Make sure the giftee is properly insured to drive the car. They will be unable to drive the car legally without car insurance.

If the giftee already has car insurance, they can contact their insurer and add the vehicle to their existing policy. If they are a new driver or don’t have insurance, they’ll need to shop around for the best rate and sign up for a new policy.

Correction, June 24, 2021: This article originally misstated how gift tax was assessed on vehicles. It's been updated to note that because of the lifetime gift tax exclusion, few people will end up paying gift tax.

Image: Morse Collection