My parents have recently suggested a generous gift/offer (although it’s only tentative; they may decide not to.) They have a secondhand car that is worth somewhere between $17-21k on the market right now, but they are offering to sell it to me for just $5k or so while they get another car (they had been planning to get a 2nd car for a while.) Basically, a huge gift.
Given that this is an artificial gift discount of around $11-16k, what’s going to happen tax-wise? Is this likely to lead to some sort of IRS audit for me when the tax officials see a good car was sold suspiciously cheaply? The amount of money gifted this way would likely fall under the gift-tax-reporting threshold.
I am not an accountant or tax lawyer but I believe the other $15k would fall under the annual gift exclusion which is $18k anyway so, in this specific instance, you would be fine: you pay for $5k of the value and the other $15k is a gift. But this wouldn’t be the case if they were going to sell you a $500k home for $50 or similar.
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $18,000 in 2024, the annual exclusion applies to each gift.
In Maryland, parents can gift a vehicle to their kids with no tax implications. Well, maybe this is a value limit, but we transferred a car to our daughter and I think even the tags went with it. My point is, check with your state’s motor vehicle dept.
In Pennsylvania, nobody really cares. If you say that the sale price is $5k, then that’s what gets written down on the form and that’s what gets taxed. The DMV or title transfer company doesn’t independently verify a vehicle’s value. Sometimes the person doing the title transfer will ask you for a bill of sale. If you don’t have one, they’ll give the seller a sheet of blank paper and a pen. They don’t really care what value you write, they just need documentation of the sale price.
If you transfer the title of an antique vehicle, they require pictures. If you say that the sale price is $500 but you give them pictures of an obvious $80k show car, that might trigger someone at the DMV to question the sale price. But mostly they just want to verify that the antique vehicle is still in basically its original configuration so that it qualifies for antique plates.
Pennsylvania has the same rule. However, you do need to provide proof that sales tax was originally paid to PA when the vehicle was registered by the parents. You also need to fill out an “affidavit of gift” for the DMV in addition to the normal title transfer paperwork.
I believe the IRS requires notification of any gift over a particular value ($18k as mentioned upthread).
Your state may vary. When I lived in West Virginia many years ago, they collected sales tax on vehicles that were gifted. I don’t know if that’s still true. I haven’t lived there in decades.
As the last two responses suggest, the implications are entirely dependent on the jurisdictions involved. Here in Ontario, there is no sales tax or any other tax owing when transferring automobile ownership between members of the immediate family. There is no safety check required, either. I believe this “no-hassle” transfer policy among family is fairly common in many US states. It’s not regarded as “suspicious” if the bill of sale is artificially low, or even $1, provided that it’s within family.
Since neither your parents nor you have any place on your tax returns to record transferring a car, why do you think IRS will ever know, much less care?
If there is going to be any issue, it’ll be at your state motor vehicle registration bureau where they will assess sales tax on your transfer. As noted above, there are 50+ polices in 50+ states. Without knowing where you or parents live (or whether that’s two different states), we can’t say more than that.
In case anyone is unaware, in the United States, gift tax isn’t owed by you the recipient and even the giver (your parents) may not owe gift tax, since there is an annual exclusion (currently $18,000). Beyond that amount, the gift has to be reported to the IRS and might affect your lifetime estate tax exemption.
I think “gift tax” is widely misunderstood. Even if you exceed the $18,000 annual exclusion, neither the giver nor the recipient pays any extra taxes in the year of the gift. All that happens is the giver’s lifetime estate tax exemption is reduced by the amount of the gift that exceed $18,000. So after the giver dies, IF their estate is worth more than $13 million dollars, it could affect the taxes that their heirs must pay upon settling the estate. If the estate is worth less than $13 million, the gift has no effect on anyone’s taxes at all.
Thanks for the good advice everyone. We’re in Texas. From reading this thread, it seems like the effect will be minimal at the Texas DMV. It’s probably a fairly common occurrence within families.
Between individuals in Texas, I thought the DMV used something like the Blue Book to determine a minimum price in terms of setting the tax value. Otherwise, people would say they bought the car for $1 to avoid the tax.
A $10 tax is due on a gift of a motor vehicle to an eligible party. The gift tax is the responsibility of the eligible person receiving the motor vehicle, and the person pays the gift tax to the county tax assessor-collector (CTAC) at the time the person titles and registers the motor vehicle. A motor vehicle received outside of Texas from an eligible donor may also qualify as a gift when brought into Texas for use in Texas.
Here in RI you’ll pay sales tax on the book value of a car. Don’t bring a receipt with you if you paid more than that. Or if you paid less because they’ll ignore it.
A person who purchases a motor vehicle in Texas owes motor vehicle sales tax.
A Texas resident, a person domiciled or doing business in Texas, or a new Texas resident who brings into Texas a motor vehicle that was purchased or leased out of state owes motor vehicle use tax, the new resident tax or the gift tax, as applicable.
Private-Party Purchases and Standard Presumptive Values
Standard presumptive value (SPV) is used to calculate sales tax on private-party sales of all types of used motor vehicles purchased in Texas. It is also used to calculate use tax on motor vehicles brought into Texas that were purchased from a private-party out of state. For more information, please see Private-Party Purchases and Standard Presumptive Values.
Rates
Sales: 6.25 percent of sales price, minus any trade-in allowance. The taxable value of private-party purchases of used motor vehicles may be based on the standard presumptive value.
Use:
Texas residents – 6.25 percent of sales price, less credit for sales or use taxes paid to other states, when bringing a motor vehicle into Texas that was purchased in another state.
Private-Party Purchases and Standard Presumptive Values
Standard presumptive value (SPV) is a value of a motor vehicle as determined by the Texas Department of Motor Vehicles (TxDMV), based on an appropriate regional guidebook of a nationally recognized motor vehicle value guide service. Values are based on the average sales price of private-party sales of used vehicles sold regionally. The condition of the vehicle is not used to determine the SPV.
SPV applies to motor vehicles purchased in private-party sales that do not involve a licensed motor vehicle dealer. This includes sales between family members, neighbors and others.
That’s howe they do it in Missouri. It doesn’t affect the sales transaction at all, but if the state values the car at $17K, that’s how the property tax will be calculated.