Gifting a car is a better option than selling it for $1 in California, since vehicles given as gifts aren\u2019t subject to taxes.<\/p>\n\n\n\n
So you want to give someone a car as a gift. You might have heard that it\u2019s better to \u201csell\u201d the car for a single dollar instead of giving it to the recipient outright. But will that really save you money on taxes\u2014and is it better to just gift the car directly?<\/p>\n\n\n\n
We\u2019ll cover the ins and outs of car sales and gift taxes in the Golden State, along with a checklist for gifting a car. <\/p>\n\n\n\n
If you\u2019re trying to help out a family member who\u2019s fallen on hard times or just surprise someone you love, it\u2019s much better to gift a car than sell it for $1 in California.<\/p>\n\n\n\n
What\u2019s the difference between gifting a car and selling it for a single dollar, anyway? It comes down to taxes. When you sell a car, that sale is subject to the vehicle sales tax in your state. In California, the car sales tax is 7.25%\u2014the third highest of any state! Combined with local taxes, the average car sales tax in the Golden State is actually closer to 9%, calculated based on the sale price.<\/p>\n\n\n\n
Gifted cars, on the other hand, are often subject to a gift tax based on their fair market value. So, in theory, selling a car for $1 could save you a lot of money on taxes.<\/p>\n\n\n\n
Not in California, though. Along with Florida<\/a>, California is one of a few states that will waive taxes for car gifts. According to Chapter 4.035 of the Vehicle Industry Registration Procedures Manual from the Department of Motor Vehicles, cars given as gifts are exempt from use tax as long as the word \u201cgift\u201d appears on the back of the title and the applicant files a REG-256 Statement of Facts form <\/a>with the DMV.<\/p>\n\n\n\n Want a more complete breakdown of the California car gifting process? Let\u2019s get into it.<\/p>\n\n\n\n If you\u2019re hoping to gift a used car to a friend or relative as a favor, the last thing you want to do is hand over outstanding debts along with it. Loans also make the title transfer process difficult, so it\u2019s best to contact any lienholders to have the liens removed before making the gift official.<\/p>\n\n\n\n This step might take some of the fun out if you\u2019re gifting as a surprise, but it\u2019s important not to skip it. Remember, car ownership involves much more than a single purchase price. When you gift a car to someone, you\u2019re also giving them a set of ongoing costs, from insurance and maintenance fees to repair bills and gas.<\/p>\n\n\n\n Sit down with the recipient of the car and figure out who\u2019s going to cover those costs, as well as the titling and registration fees involved in the gifting process. You should be prepared to account for a $15 title transfer fee, an $8 smog transfer fee, and a $64 vehicle registration fee. In addition, keep in mind these averages:<\/p>\n\n\n\n While all of these costs will vary depending on the type of vehicle you\u2019re gifting, you\u2019ll need to make a plan for paying all of them.<\/p>\n\n\n\n Learn more: <\/strong>Buying a car in California from out of state<\/a><\/p>\n\n\n\n That\u2019s right\u2014you should still write a bill of sale for a gifted car. This document creates a legal record of the transaction, even though no money changed hands.<\/p>\n\n\n\n There\u2019s no single required format for a California bill of sale\u2014in fact, it\u2019s not a legal requirement. But the DMV provides a sample bill of sale<\/a> that you can download and fill out yourself, and it includes a space to indicate that the car is a gift.<\/p>\n\n\n\n If you\u2019re creating your own bill of sale, the most important things to include are the make, model, year, and vehicle identification number (VIN) for the car, as well as the full names, addresses, and signatures of both yourself and the new owner. It\u2019s also a good idea to include the date, odometer reading, and license plate number.<\/p>\n\n\n\n A bill of sale is important but not required\u2014but transferring the vehicle title is absolutely essential. Without it, you won\u2019t be able to legally transfer ownership, and you\u2019ll still be fully responsible for the car.<\/p>\n\n\n\n To transfer the title, you\u2019ll need one of two key documents: either the actual vehicle title, or an Application for Replacement or Transfer of Title (REG-227)<\/a>. If you\u2019ve got the original title (or a replacement), fill out the back and be sure to write \u201cGIFT\u201d in lieu of a purchase price. If you don\u2019t have the title, fill out the REG-227 and check the appropriate box to indicate that it\u2019s a gift.<\/p>\n\n\n\n Unless you want to pay taxes on the gifted car, you\u2019ll need to file a Statement of Facts (REG-256)<\/a> with your local DMV. This affidavit allows you to claim the tax exemption for a car gifted to a private party. It\u2019s also possible to apply for a tax exemption for any vehicle transfer between family members, defined by California law as:<\/p>\n\n\n\n Your niece, nephew, and cousin don\u2019t count as \u201cfamily members\u201d for the purposes of car use tax exemption unless you check the box to indicate that the transfer is a gift. Some exclusions may also apply if you\u2019re gifting the car to a business or business owner.<\/p>\n\n\n\n Before the gift can be finalized, your giftee will need to provide proof of insurance that meets California\u2019s minimum requirements. If they already have car insurance, this could be as simple as contacting their insurance company to add a new car to their policy.<\/p>\n\n\n\n But depending on the value of the car, its safety ratings, and other factors, their insurance rate could rise as a result of the gift. That\u2019s why it\u2019s a good idea to compare car insurance quotes and switch to a lower rate.<\/p>\n\n\n\n Gifting a car instead of selling it for $1 in California can save you a lot of hassle\u2014and some tax money! But there are a few things to keep in mind if you\u2019re considering this world-class gift.<\/p>\n\n\n\nHow gifting a car works in California<\/h2>\n\n\n\n
1. Pay off any outstanding loans<\/h3>\n\n\n\n
2. Negotiate the terms of the gift<\/h3>\n\n\n\n
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\n\n\n\n3. Create a bill of sale<\/h3>\n\n\n\n
4. Transfer the car title<\/h3>\n\n\n\n
5. Fill out a Statement of Facts to avoid sales tax<\/h3>\n\n\n\n
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6. Purchase insurance<\/h3>\n\n\n\n
What to keep in mind when gifting a car in California<\/h2>\n\n\n\n
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