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Guide to Gifting a Car During the Holidays

Auto sales are up in 2016, and with the holidays upon us, the urge to gift a new or used car to a loved one − or even yourself − may be hard to resist.

Historically, December is a strong month for U.S. car and truck sales. According to industry figures, Americans bought 17.83 million vehicles in December, 2015.

That’s at the high end of the annual vehicle sales range (actually, January was the strongest month for vehicles sales in the past year, at 18.23 million cars and trucks purchases across the country, according to the Bureau of Economic Analysis.)

But there’s more evidence that Americans like to gift cars as holiday presents – even if that gift is to themselves. Fresh data from eBay.com Motors  shows that “nearly one-third of Americans have either gifted a vehicle to themselves or to someone else in celebration, or in recognition of, a major life milestone, including the holidays.”

And if you're curious, according to eBay.com Motors, the most considered brand for Millennials on your gift list is Ford, with Gen X-ers shopping for Nissans and Baby Boomers eyeing Toyotas.

Tips for gifting a car this holiday season

If you do buy a vehicle for the holidays, and gift it to someone else, what are the rules of the road to follow?

That’s a question insuranceQuotes asked some auto industry experts – and they have some interesting takes on the subject.

“Gifting a vehicle is a great present to give your son or daughter after they receive their driver’s license,” says Rishi Sholanki, a personal wealth adviser.It’s also a great gift for your spouse, if you are able to keep it hidden before the big reveal.”

To properly gift someone a car around the holidays takes planning, Sholanki says.

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“Usually, a used car is passed down to the son or daughter, in which you must assure all liens on the vehicle are paid off,” he says. “If they are not, your name will not appear on the car and will not be able to transfer ownership to your child.” 

It’s the same deal when gifting a present to your husband or wife.

“The lienholder should also sign off on the transfer of ownership to show all loans are satisfied,” he adds. “Usually gifting a vehicle between family members is tax-free, however each state’s laws are different.”

Insurance-wise, you need to be equally careful when gifting a vehicle this holiday season. Always make sure your vehicle has immediate and adequate insurance coverage.

“The key is to simplify,” says insurance specialist Alyse Ainsworth.   

“If you’re buying a vehicle where you’ll be part owner it’s easiest to put it on your own policy. If you’re already on a shared policy with the recipient, then all you need to do is add the new car to your already active policy.

“However, if you’re not a co-owner then things can get a little tricky,” Ainsworth adds. “Make sure to give yourself enough time to research and get all the necessary steps done, including talking to a trusted auto insurance professional.

Keep in mind that state-by-state auto purchase rules will vary and they may require the recipient to be present in order to title the vehicle.

“To avoid running into any DMV issues, contact your local office ahead of time to see what is required,” Ainsworth says. “Ask about titling, registration, insurance, and ownership.”

Tax issues when gifting a car

Keep an eye on tax ramifications, too.

“There are some really important tax considerations to giving a car as a gift, that the giver would be wise to take into account before making an expensive end-of-year purchase,” says Jacob Dayan, a sales and marketing data analysis expert in Chicago.

Dayan says the giving of gifts over a certain threshold per year triggers a federal gift tax. For example, in 2016, the threshold is $14,000 per individual.

“Any value over $14,000 would be taxable as income in the case of one individual giving to another,” he adds. “However, couples can combine their individual thresholds whether giving or receiving. In the case of a married couple giving to an individual, the limit is $28,000, and for a married couple giving to another married couple, the limit is $56,000." 

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Those limits and tax obligations are the same whether or not the parties are in the same family, Dayan says.

“The limits are cumulative for the year, meaning the value of all gifts given should be considered in the calculation,” he explains. “Other high-value items, like art or jewelry or even cash, given during the year would reduce the amount of the gift tax exemption available to for a car purchase for the holidays.

To help you crunch the numbers, Robert Butler, owner and operator of Butler Auto Group in Indianapolis, advises addressing state tax first, before making any purchase.

“State taxes are great place to start figuring out how much tax penalization you'll be saddled with if you feeling generous.,” Butler says.

Gift taxes differ state-to-state so it will vary, but almost exclusively they are based on these factors (including new, used, dealership or gifted from private owner):

  • Total purchase price
  • Purchase price after trade-in is deducted
  • Purchase price after cash incentive is deducted
  • Whether the gift is for a spouse, child, or friend.

Don't forget the big red bow

For the cherry on top, there is no shortage of ways to add a giant-size red or silver bow to pop on top your four-wheel holiday gift.

“For shock and awe, I recommend checking out Amazon for the bow,” Ainsworth says. “You can get a giant-sized bow for $25, with some of them being Prime eligible. Just make sure to order the bow with enough time to ship and consider shipping it to a friend's or family member's address.”

Delivery-wise, enlist the help of the dealership, a neighbor, and/or family member, to get the vehicle to (or near) the recipient’s home on Christmas Eve.

“Dealerships are usually fine with holding onto the vehicle for a short period of time but may not be willing to deliver it late Christmas Eve,” Ainsworth adds. “Have a neighbor or family member deliver it late that night, bow and all.”

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