Gifting a car to your loved one or friend usually requires a bill of sale, but is rarely a tax deduction. Gifting it to a charity can mean a tax deduction. Knowing what laws apply to your situation is important when it comes to making sure the gift is legit, and when you can deduct a car donation from your taxes.
Gifting With a Bill of Sale
Writing a bill of sale for gifting a car to another person is the first step in giving your vehicle as a gift. Giving a vehicle as a gift doesn’t exclude you from going through the legalities of transferring a car. This is a vehicle that is driven on public roads, and all vehicles must be registered and insured if they are to be driven on public roads. If you are gifting the car to a relative or a friend, you are likely to be required to write a bill of sale for gifting a car. Check with your state Department of Motor Vehicles to see how the gifted vehicle bill of sale must be properly worded. Many states have a bill of sale template you can download off their website. There may also be fees involved, so you should be aware of this as you gift your vehicle. In California, the title transfer fee is $15 plus tax. You’ll need to make sure you have no outstanding liens on your car. If you owe money on your car, you’ll have to pay off that money before you can transfer the title and write the bill of sale. If your title lists a lienholder, get in touch with the lienholder to make sure the lien gets removed.
Writing the Bill of Sale
You’ll need to have the bill of sale ready for the recipient before going to the DMV. If you can’t find a bill of sale template on your state DMV website, you should create one. On the bill of sale template, where the dollar amount is listed, write “gift” in the allotted space. You’ll need to note the date of sale, the car’s identification number, make, model and the number of miles on the odometer at the time of the transfer. You’ll need the current license plate number, and names, addresses and signatures of you and the recipient. You’ll also need the title in hand, and both you and the recipient must sign and date the title. Check with your state DMV to see if you need to fill out any other forms. The recipient may then have to pay a title transfer fee. You can decide if you want to pay for this or let the recipient pay this fee. Once the title is transferred, the recipient can enjoy new ownership of the gifted car.
Some Things to Remember
If you are gifting to a family member, most states will not require you to pay sales tax. This usually goes for spouses, parents, children, grandparents, grandchildren, siblings and partners. Further, many states do not require sales tax to be paid on any gifted vehicle, whether it’s to family members or not. But check with your state DMV website to be sure. Maryland, for example, requires that gifting the car tax-free be to a relative only, otherwise, when the car ownership is transferred, that state's Motor Vehicle Administration will charge a 6-percent tax of the car’s book value.
Donating a Car
When you donate your car to a qualified nonprofit, the nonprofit should give you a bill of sale if you need one. Many states do require this, but a reputable nonprofit should know the process and give you the right paperwork. You will also want to have a clear title that you can provide to the nonprofit. But do your homework and make sure the charity has experience with vehicle donations so you have a bill of sale if needed or any other required paperwork.
Depending on the value of the car, you may be able to write off the fair market value on your taxes. Most charities will give you a tax receipt for the fair market value of your car if that value exceeds $500. According to the IRS, your car donation must meet certain criteria in order for you to write it off as a deduction on your federal taxes for both 2017 and 2018. Those include:
- The charity uses the vehicle, such as for Meals on Wheels.
- The charity makes major repairs to the vehicle.
- The charity donates or sells the car to a needy person at below market price to help someone in need with transportation.
For car donation tax deductions for 2018, you’ll need to follow the instructions outlined on IRS Form 1098-C. But you don’t need to fill it out if the vehicle’s estimated worth is less than $500. If your vehicle is worth more than $5,000, you'll need to submit an appraised value as well. For your 2017 taxes, you'll need to fill out the 2017 IRS Form 1098-C, which is available online in PDF form. Again, you don't need to fill out the form if the vehicle is worth less than $500.
Karen Gardner is a former feature editor and writer and is now a freelance writer. She looks forward to doing her family's taxes each year, and likes to write about home finances and money subjects for the rest of us.