Gifting A Car: 6 Steps

While holiday TV advertising suggests otherwise, gifting a vehicle over the holidays is less common than you think. According to Kelley Blue Book, vehicle prices average $48,699, so the homemade route may be smarter than buying a car for a loved one.

But if you can’t resist the big red bow, you can ensure your present doesn’t create future legal issues for the recipient by following some key steps. Once you determine if a car is the best gift, prepare the necessary paperwork to ensure proper ownership.

What to know before gifting a car

• Gift taxes
  

  In most cases, recipients will not have to pay taxes on the car you give them. If the vehicle is worth more than $19,000, the amount over $19,000 will count toward the recipient’s lifetime gift tax. Most states (except Connecticut) do not tax gifts.

• Paperwork
  

  Most states require you to formally transfer a vehicle’s title when gifting it, as well as complete a bill of sale. You can enter “$0” as the purchase price on the bill of sale if the vehicle is a gift.

  Be aware that each state sets expectations for paperwork. Some states require the vehicle’s market value be documented while others require proof of familial relationship when gifting a car.

• Insurance requirements
  

  Every state except New Hampshire requires that vehicles be insured before they can be registered. Each state sets its own minimum requirements for auto insurance.

• Gifting across state lines
  

  • Each state sets its own vehicle inspection requirements for safety features, emissions and inspection frequency. Just because a vehicle meets your state’s requirements does not mean it will meet the requirements of the recipient’s state.
  • Some states require that your title transfer request be notarized.
  • Some states may require you to pay taxes on a vehicle if it’s gifted across state lines.
  • You may be required to pay taxes when registering a car in a new state even if it has been registered in a different state before.

• Liens
  

  You’ll need to settle any liens before you can transfer the title of a car, including any secured loans used to purchase the car.

• Affordability
  

  Consider whether the person you’re gifting a car is able to afford the gift. The recipient will need to cover insurance, maintenance, fuel, taxes and possibly parking fees.

1. Consider whether a car is the best gift

While buying someone a car is a grand gesture, it isn’t always the right move for the recipient’s future finances. Gas, insurance and maintenance costs add up, averaging over $12,297 per year in 2024, according to Bankrate’s Hidden Cost of Car Ownership Study.

Consider if the new owner can afford consistent upkeep for the vehicle and if they have a spot to store it. And most importantly, if they need one.

2. Acquire the vehicle

If you already own the vehicle — and have completely paid off any auto loan you took out to purchase it — you can move on to step three. But if you’re buying the vehicle just to gift it, you will first need proof of insurance to show the dealership.

In this case, you can temporarily add the vehicle to your policy or ask the insurance company for a verbal or written binder. The latter states that the car is covered, but the policy has yet to be issued.

3. Write a bill of sale

Legal requirements vary by state, but if you reside in one of the 16 states where bills of sale are enforced, it’s best to get that in order before the holiday. The bill of sale is legal documentation that proves that the vehicle was sold. In this case, it will outline the ownership details of whoever receives the car. The following information is required, but check with your state’s Department of Motor Vehicles for further guidance:

• VIN
• Vehicle details, including make, model, color and year
• Odometer reading
• Payment details — in this case, write in “$0”
• Terms and conditions
• Buyer and seller contact information
• Signatures from the buyer and seller

4. Transfer the title

The title serves as proof of ownership, so once you gift the vehicle, it’s essential to transfer the title to their name. This process varies by state, so check out your local DMV’s website for specific details. But typically, you’ll need the date of sale, odometer reading and buyer information. The title will also request the vehicle’s purchase price. Simply write “$0.” To seal the deal, get the title notarized.

5. Complete an affidavit of motor vehicle gift transfer form

Along with the title documentation, some states require additional proof of ownership. By filling out an affidavit of motor vehicle transfer form, you will give full legal ownership to the new owner. Contact your DMV and request the form. As mentioned, the specifics of this documentation vary by state, but typically, it will require some information on you and the giftee.

6. Fill out your tax forms

The final step in the gift-giving process is to address the correct tax documentation, which varies depending on your state. Search the web for your state plus “gifting a car.”

At the national level, the IRS requires disclosure of gifts above a certain amount due to gift tax rules. You’ll have to file a gift tax return if the vehicle’s fair market value brings the total value of gifts you’ve given the recipient in 2025 above $19,000.

That said, even if the gifted car is worth more than $19,000, you likely won’t have to pay taxes on the gift. The amount above the annual $19,000 threshold counts against a lifetime exclusion of $13.99 million — you’ll only have to pay taxes if your lifetime total surpasses that enormous sum.

Gifting a car vs. selling for $1

While some gifters decide to sell the vehicle to the recipient for $1 in hopes of avoiding gift taxes, it’s not always the best idea. For one, it doesn’t make the process easier: Gifters must still jump through documentation hoops to complete the transfer. Plus, the recipient will likely have to pay the sales tax for the vehicle based on its current fair market value rather than the $1 sales price.

Bottom line

Before heading to the dealership this holiday season, consider how gifting a depreciating asset might not be the best move for you or the recipient. But if the giftee can afford and would benefit from a new vehicle, take the necessary steps and register the vehicle and encourage the recipient to find the right insurance.