Have you ever given something of significant value to a friend or relative and wondered what the tax implications are?
In most instances, there aren’t any tax implications for giving (gifting) a car, or other asset to a friend, relative, or even stranger.
Giving a Car as a Gift
I just received this question from a reader:
My brother-in-law wrecked his car and the insurance company totaled it. He has horrible credit so we decided to give him my car so he could get out from under some bills and what was a 20% interest rate and $500/month payment on his car. He flew out here from out of state and drove the car back. My question is, are there tax implications for either of us if we gift him my car. It was in my name. He is my brother-in-law. So I can’t find much other than gifting a car to your brother.
This is certainly a very generous move. But it’s not one that has a tax effect, in most cases. In this particular situation, and most like it, the person giving the car doesn’t get a deduction and the recipient doesn’t have to claim it as income.
For a gift to be considered tax-deductible, it should be made to a qualifying charitable organization. So, unless your friend or relative is actually the organizer for a charitable organization, like George Costanza and his Human Fund, you can’t claim the gift as a charitable deduction on your taxes.
On the other side of the transaction, the recipient doesn’t have to claim the gift received as income. So, they don’t have to pay taxes on it.
Gift Tax Exclusion
But the IRS just doesn’t let you give everything away at the end of the year without getting involved. Big givers will have to file a special Form 709 if they exceed the annual gift tax exclusion ($13,000 for 2012).
Have you ever gifted a car or similar asset to an individual or charitable organization? Share your experience below…