Gifting a car: A guide

Quick insights

• Gifting a car to someone might transform an ordinary day into an extraordinary one, but not without some preparation.
• Some of the most important steps include setting up insurance, registering the vehicle and transferring the title.
• There may also be state-specific requirements when gifting a car, which range from additional forms to specific inspections.

Gifting a car might mean giving someone a key to countless new adventures. However, if you’re the recipient, you might be worried that a mountain of paperwork comes after. This guide can help both parties with the process of gifting a car.

Understanding the basics of gifting a car

Gifting a car requires some planning and paperwork, such as setting up the recipient’s insurance coverage and transferring ownership. Some steps can be handled beforehand, while others might have to be handled after the fact. State laws will dictate specific forms and steps needed to gift a car, so gather instructions from your local DMV.

How do you gift a car?

Assuming you’ve already selected the vehicle to gift, here’s the general process you’ll follow:

1. Prepare the vehicle

A clean car can make for a better gift, even hand-me-downs. However, more important to preparing your vehicle as a gift is collecting several car-related documents:

• Title
• Registration
• Insurance card
• Maintenance records
• Any warranties

You’ll definitely need the car’s title to officially transfer ownership. Unfortunately, gifting a car with an outstanding loan or lien could be complicated or impossible.

2. Complete a bill of sale

A bill of sale simply creates a record of the transaction, even when a car is gifted. Some states require a bill of sale for gifted cars. It should state the car is a gift and can show $0 as the purchase price. The bill should have the car’s make, model, year, VIN and information about both parties (grantor and recipient).

3. Transfer the title

This certificate of ownership should be signed by both the grantor and recipient. Don’t worry about handling this beforehand if you don’t want to ruin a surprise, or if the car is part of an inheritance. One or both parties may be able to complete this step at DMV or a titling agency after the car is gifted. In the case of an inheritance, the executor of the estate will likely have to be involved in the title transfer.

A transfer fee and additional forms might be required to transfer a car’s title, depending on the state.

Insurance considerations when gifting a car

The recipient will have to obtain insurance for the car to drive it legally. The owner can add a recipient to a car insurance policy and then amend the coverage with the insurer after the gift is given. If possible, the car’s grantor should cancel their insurance on the car once the transfer is complete.

When you’re financing a car you want to gift or bequeath, notify the lender of your intention. The lender can provide specific instructions for gifting the car but might require the loan to be paid off before the title can be transferred. This is because the lender holds a lien on the vehicle as collateral for the loan.

When a car is transferred upon the owner’s death, the executor of the estate handles the loan payoff according to the will or state laws.

State-specific considerations when gifting a car

Depending on your state, specific forms and fees may be required, such as a gift affidavit, tax emption form or title transfer fee. Gifted cars may also need emissions inspections, safety checks or a notarized vehicle title when ownership is transferred in certain states

Here are some examples of unique state requirements for gifting cars:

• Taxes and fees: In most states, the recipient won’t pay sales tax if they provide proof that it’s a gift. However, some states might still require a small transfer fee. Always check with your state’s DMV.
• Emissions and safety inspections: States like California and New York have strict emissions regulations. The car may need to pass these checks before being newly registered in the recipient’s name.
• Notarization: Many states require the vehicle title or transfer document be signed and notarized to transfer ownership. Other documents, such as the odometer disclosure statement and bill of sale, may also need to be notarized.

The process can be a little more complicated if the car’s grantor and recipient are in different states. For the latest instructions and assistance with the process, consult the appropriate DMV(s).

Do you pay taxes if someone gives you a car?

For specific information about taxes and gifted cars, check with your state’s DMV and consult the IRS. In most cases, if the car is a gift from a family member or friend, the recipient won’t have to pay sales tax. If the car is over a certain value, the recipient may need to report it as a gift on their federal taxes. Whether a bequeathed car is subject to inheritance tax depends on several factors.

Additional tips for a smooth car-gifting experience

The more you can do ahead of time, the smoother the gift exchange of a car will be.

Here are some extra tips that could make the whole gifting process more straightforward:

• Verify the ownership information on the existing title.
• Make sure the car is fully paid off and free of liens.
• Gather all the necessary documents in a safe place—the title, warranty, bill of sale and state-specific forms.
• Contact an insurance company to set up coverage for the recipient and the associated costs.
• Double-check state rules to avoid any surprises on the day of transfer.
• Schedule a time to visit the DMV or titling office. If you can make an appointment online, that might make the errand quicker and more convenient.

In conclusion

Gifting a car can be a meaningful and generous gesture but involves more than just handing over the keys. There are several steps to follow that will smooth the transfer and keep it legal. The recipient usually won’t have to pay sales tax, but fees and documentation rules vary by state. When you don’t want to ruin a surprise, prepare the recipient for anything either of you have to do after they have the car.

Gifting a car will require a bit of prep and paperwork but could make for a very memorable experience.