While buying a brand-new vehicle for a friend or family member may not be an option for the average joe, you can give your used car to someone else. Here’s how it works, and the vehicle’s value matters too.

Gifting a Car

How to Gift a Used CarIf you decided to gift your car to someone else, remember that every state varies in the process of both gifting a used vehicle and transferring ownership. For example, some states require a notary to officially transfer car ownership. Generally, though, transferring ownership of a gift vehicle usually involves a bill of sale and the title.

To transfer ownership of a car to someone else, there can’t be a lien on the vehicle, for a loan or any other reason. To transfer ownership legitimately, you must own the car fully. If the vehicle is close to being paid off, or you just recently completed it, contact your lender about getting a release of lien letter to prove you’re free and clear of the auto loan.

Assuming the car is paid off, draft up a bill of sale. If you skip this step, you can still be liable for the used vehicle. There are many premade formats online, but the most important parts that need to be listed on the bill of sale are:

  • Year, make, and model of the car
  • Vehicle identification number (VIN)
  • Odometer reading
  • How much you sold it for
  • Both of your signatures

To complete the sale, both of you need to sign the title and bill of sale. Then, the giftee can take the title and bill of sale to your local DMV or Secretary of State to get a new title and register the car in their name.

Consider the Gift Tax

You, as the gifter, may be required to pay the gift tax depending on the used vehicle’s value.

As of 2019, if the car’s fair market value (FMV) is more than $15,000 (for a single person) you could pay around 18% to 40% in gift taxes on the amount which exceeds $15,000. If you’re gifting the vehicle to a married couple, the FMV can’t exceed $30,000 if you want to avoid paying gift tax. If you’re gifting the car to your spouse, there’s an exemption to the gift tax no matter the value – all gifts to your spouse are tax-free.

Selling the vehicle to a relative or friend for an extremely low price doesn't exclude you from paying gift tax, either. If you think, “I’ll just sell them the car for a dollar,” it still counts as a gift if you sell them the vehicle for less than its FMV. Say the car is worth $16,000 and you sell it to them for $1, then you give them a gift of $15,999. Since the value is more than $15,000, you’re responsible for paying the gift tax.

One tax you don’t have to worry about paying, though, is sales tax, since you already own the vehicle.

Don’t Forget About Auto Insurance!

In nearly every state, you need to have an auto insurance policy that meets your state’s minimum requirements.

Are you going to pay for the giftee’s car insurance, or is that up to them? Make sure that gets sorted before you officially transfer ownership – it’d be a shame if your gift recipient can’t cover the cost of auto insurance after you give them the vehicle.

If they can’t afford car insurance and you can’t afford (or don’t want to) pay for it, then gifting a vehicle may not be the right thing to do. If you still want to make use of your car as a gift, but don't have a specific person in mind, consider donating your vehicle to a local or national charity.

Getting a Car After Gifting One

Many borrowers who are new to the car-buying game may not have the best credit score. Borrowers with a tattered credit history can have issues qualifying for an auto loan, too. If you were considering gifting a friend or family member a vehicle, but decided against it, direct them toward us at Auto Credit Express.

We’ve amassed a nationwide network of dealers that have bad credit lending resources. Thanks to our vast network, we’ve been matching borrowers to bad credit dealerships for over 20 years.

Or, if your credit isn’t the best and you need another car after gifting your vehicle, then you can start the car buying process with us, too!

Subprime lenders often assist borrowers who have limited credit histories and those with poor credit scores. These lenders are signed up with special finance dealers, and we want to match you to one in your local area. Fill out our free auto loan request form to get started.