Gifting a new car to our daughter - gift tax?

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novembre
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Gifting a new car to our daughter - gift tax?

Post by novembre »

We are a retired couple in our early eighties. We would like to give our daughter a new car, probably cost about $32,000. Can we expect to have to pay gift tax?
What is the best way to go about this?

Thanks for any help or advice.

Nov
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Picasso
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Re: Gifting a new car to our daughter - gift tax?

Post by Picasso »

Just a data point: my parents gifted me a $35k used car when I left college and they paid no gift tax. They paid for car and put my name on the title. As simple as that.

PS. I still drive that car! Its be hugely helpful in my ability to save and I am very grateful to them for the gift.
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HueyLD
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Re: Gifting a new car to our daughter - gift tax?

Post by HueyLD »

If you don’t have $23.16 millions to give away, you have no tax issues.
magicrat
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Re: Gifting a new car to our daughter - gift tax?

Post by magicrat »

The federal lifetime exclusion is currently ~$11.6 million per person. So unless you have an estate greater than ~$23 million, you are fine. Even if you do, you can each gift your daughter $15k per year without counting against the exclusion. Regardless of size of estate, you will need to file a gift tax return if either of you gives her more than $15k in a year.
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Re: Gifting a new car to our daughter - gift tax?

Post by Gill »

If you really want to play it by the letter of the law (although it seems like overkill), give her a check for $30,000 now or when it's time to buy the car and give her a check for the balance in January.
Gill
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Ben Mathew
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Re: Gifting a new car to our daughter - gift tax?

Post by Ben Mathew »

You can gift up to $15,000 per year to your daughter without any reporting requirements. Between you and your spouse, that's 15,000*2=$30,000. So I wouldn't worry about a car that costs about that much.

If a gift exceeds the annual exclusion, you have to file a form but there is no tax due. It just just gets added to your estate for the calculation of estate tax due when you die. Most people don't leave a large enough estate to be subject to the estate tax, so effectively there is no tax on gifts for most people.
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Re: Gifting a new car to our daughter - gift tax?

Post by Doctor Rhythm »

As others have said, it’s not an issue of tax but of reporting. Here’s the IRS’s FAQ page on the law. If you can bargain the price down to $30K, it’s non-reportable. I suppose you could also buy it for yourselves, go joy-riding, and then give it to her later as a slightly depreciated used car. Or maybe just fill out form 709 and be done with it.
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Re: Gifting a new car to our daughter - gift tax?

Post by prairieman »

HueyLD wrote: Tue Oct 13, 2020 2:47 pm If you don’t have $23.16 millions to give away, you have no tax issues.
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
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Ben Mathew
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Re: Gifting a new car to our daughter - gift tax?

Post by Ben Mathew »

prairieman wrote: Tue Oct 13, 2020 10:58 pm
HueyLD wrote: Tue Oct 13, 2020 2:47 pm If you don’t have $23.16 millions to give away, you have no tax issues.
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
Connecticut is the only state that taxes gifts. In other states, you can gift any amount without state estate tax consequences.
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Re: Gifting a new car to our daughter - gift tax?

Post by prairieman »

Ben Mathew wrote: Wed Oct 14, 2020 1:37 am
prairieman wrote: Tue Oct 13, 2020 10:58 pm
HueyLD wrote: Tue Oct 13, 2020 2:47 pm If you don’t have $23.16 millions to give away, you have no tax issues.
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
Connecticut is the only state that taxes gifts. In other states, you can gift any amount without state estate tax consequences.
I don’t think that is true, having gone through the process as an executor in Minnesota a while ago. There was a 709 form that added to the estate’s value which ultimately was taxed at the marginal estate tax rate.
“As long as the roots are not severed, all is well.” Chauncey Gardner
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Re: Gifting a new car to our daughter - gift tax?

Post by Gill »

prairieman wrote: Wed Oct 14, 2020 8:14 am
Ben Mathew wrote: Wed Oct 14, 2020 1:37 am
prairieman wrote: Tue Oct 13, 2020 10:58 pm
HueyLD wrote: Tue Oct 13, 2020 2:47 pm If you don’t have $23.16 millions to give away, you have no tax issues.
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
Connecticut is the only state that taxes gifts. In other states, you can gift any amount without state estate tax consequences.
I don’t think that is true, having gone through the process as an executor in Minnesota a while ago. There was a 709 form that added to the estate’s value which ultimately was taxed at the marginal estate tax rate.
That is not the state taxing gifts. It is taxing the gross estate as determined for Federal Estate Tax purposes.
Gill
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Re: Gifting a new car to our daughter - gift tax?

Post by Jack FFR1846 »

You can avoid the "gift limit without reporting" by handing daughter 2 checks, if you are currently married. $15k check from husband. $15k check from wife. Or if daughter is married, $15k check to daughter, $15k check to son in law.

For those saying under $23M doesn't matter.....well, that depends on the state. Mass and several other states have a $1M lifetime limit and above that, a cliff that taxes from dollar #1.

A known loophole in Mass. You buy the car, register it in your name, keep it 6 months. Then gift it to daughter. In Mass, there's a form for transfers from family members. You do not put any value anywhere on the form and you leave the value blank on the title (and if you don't, the registry worker will cross out whatever number you put in there anyways). There is no sales tax. One might say that the value is zero. I've done this several times (not with a new car) from my mom and DW's dad. I've always thought it would be the way to get an exotic car without paying sales tax. My sister in New Hampshire could buy a Lamborghini in New Hampshire, where there's no sales tax. Register it for 6 months, then give it to me. It's a loophole that I would bet others have used since I'm sure I'm not the only one to figure it out.
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prairieman
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Re: Gifting a new car to our daughter - gift tax?

Post by prairieman »

Gill wrote: Wed Oct 14, 2020 8:19 am
prairieman wrote: Wed Oct 14, 2020 8:14 am
Ben Mathew wrote: Wed Oct 14, 2020 1:37 am
prairieman wrote: Tue Oct 13, 2020 10:58 pm
HueyLD wrote: Tue Oct 13, 2020 2:47 pm If you don’t have $23.16 millions to give away, you have no tax issues.
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
Connecticut is the only state that taxes gifts. In other states, you can gift any amount without state estate tax consequences.
I don’t think that is true, having gone through the process as an executor in Minnesota a while ago. There was a 709 form that added to the estate’s value which ultimately was taxed at the marginal estate tax rate.
That is not the state taxing gifts. It is taxing the gross estate as determined for Federal Estate Tax purposes.
Gill
I’m not sure I understand your meaning or if this is just semantics. The gift is not called out specifically for a separate gift tax but the amount listed on the 709 form adds to the value of the estate and so is, in fact, taxed by the state.
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Re: Gifting a new car to our daughter - gift tax?

Post by Gill »

prairieman wrote: Wed Oct 14, 2020 8:53 am
Gill wrote: Wed Oct 14, 2020 8:19 am
prairieman wrote: Wed Oct 14, 2020 8:14 am
Ben Mathew wrote: Wed Oct 14, 2020 1:37 am
prairieman wrote: Tue Oct 13, 2020 10:58 pm
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
Connecticut is the only state that taxes gifts. In other states, you can gift any amount without state estate tax consequences.
I don’t think that is true, having gone through the process as an executor in Minnesota a while ago. There was a 709 form that added to the estate’s value which ultimately was taxed at the marginal estate tax rate.
That is not the state taxing gifts. It is taxing the gross estate as determined for Federal Estate Tax purposes.
Gill
I’m not sure I understand your meaning or if this is just semantics. The gift is not called out specifically for a separate gift tax but the amount listed on the 709 form adds to the value of the estate and so is, in fact, taxed by the state.
It's not semantics. In certain cases a gift is brought back into the estate and included in the estate for estate tax purposes. To put it differently, by making such a gift you have not excluded it from your estate.
Gill
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Re: Gifting a new car to our daughter - gift tax?

Post by JackoC »

prairieman wrote: Tue Oct 13, 2020 10:58 pm
HueyLD wrote: Tue Oct 13, 2020 2:47 pm If you don’t have $23.16 millions to give away, you have no tax issues.
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
To clarify above exchange, CT is the only state with a gift tax, but around 10 other states impose a time limit whereby a gift given within a few years (generally) of death may be included in the gift giver's estate for state estate tax purposes. MN is one of them (3 yrs), and prior to 2014 there was a gift tax per se, so the above post might refer to one or other of those situations. But assuming OP isn't in CT and has significant life expectancy, there is no state tax or filing requirement directly linked to gifting a >$30k car.

Although you're right one might need to consider state estate/inheritance tax generally with assets below the current federal exemption (which itself basically* halves after 2025 under current law). If you live in a state with low estate tax threshold in which you plan to finish things out, it can be more reason to gift assets, even above the $15k/giver-recipient pair/yr federal exclusion (therefore filing a federal gift tax return and subtracting from your eventual federal exemption, but again that does not reduce your state exemption in almost any state with a lower one than federal, assuming it's done well before you die).

But right, we bought our daughter a slightly more than $30k car a couple of years ago, by gifting her the money in pieces over two tax years, then she actually bought the car, avoiding the paperwork nuisance of filing a federal gift tax return for the marginal amount. For the tiny % of people in the real world who would ever even think of this issue, wildly disproportionately represented here, that's the neat way to keep it by the book.

*the original 10mil per person baseline reverts to 5mil, then inflation adjusted to the relevant date.
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Re: Gifting a new car to our daughter - gift tax?

Post by Watty »

novembre wrote: Tue Oct 13, 2020 2:42 pm We are a retired couple in our early eighties.
....
What is the best way to go about this?
It is much more of an issue with teenagers and kids in their early 20s but people have given kids cars then been sued when the kid was in accident. This is usually when the kid had a known history of reckless driving, drugs, alcohol abuse, etc.

If anything like that is going on then you may want to check with a lawyer about giving your kid a car.

The parent may not lose the lawsuit since there are lots of issues with being sued like that but they would still need to deal with the lawsuit.
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Re: Gifting a new car to our daughter - gift tax?

Post by prairieman »

JackoC wrote: Wed Oct 14, 2020 9:48 am
prairieman wrote: Tue Oct 13, 2020 10:58 pm
HueyLD wrote: Tue Oct 13, 2020 2:47 pm If you don’t have $23.16 millions to give away, you have no tax issues.
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
To clarify above exchange, CT is the only state with a gift tax, but around 10 other states impose a time limit whereby a gift given within a few years (generally) of death may be included in the gift giver's estate for state estate tax purposes. MN is one of them (3 yrs), and prior to 2014 there was a gift tax per se, so the above post might refer to one or other of those situations. But assuming OP isn't in CT and has significant life expectancy, there is no state tax or filing requirement directly linked to gifting a >$30k car.

Although you're right one might need to consider state estate/inheritance tax generally with assets below the current federal exemption (which itself basically* halves after 2025 under current law). If you live in a state with low estate tax threshold in which you plan to finish things out, it can be more reason to gift assets, even above the $15k/giver-recipient pair/yr federal exclusion (therefore filing a federal gift tax return and subtracting from your eventual federal exemption, but again that does not reduce your state exemption in almost any state with a lower one than federal, assuming it's done well before you die).

But right, we bought our daughter a slightly more than $30k car a couple of years ago, by gifting her the money in pieces over two tax years, then she actually bought the car, avoiding the paperwork nuisance of filing a federal gift tax return for the marginal amount. For the tiny % of people in the real world who would ever even think of this issue, wildly disproportionately represented here, that's the neat way to keep it by the book.

*the original 10mil per person baseline reverts to 5mil, then inflation adjusted to the relevant date.
I love this site! So much knowledge. This confusion made me do some research and, yes, the rules have changed for MN, right around the time we went through the exercise for real. The gift with the 709 was made in 2013 and the person who passed away died in 2015. I did not catch the 2014 rule change and the state accepted the return even though it did include the gift. I’m going to have to study how the rule change reads.
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novembre
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Re: Gifting a new car to our daughter - gift tax?

Post by novembre »

From the OP

Thank you Bogleheads!

We’ll take the advice to give our daughter $30,000 Now and the rest in January.

What a great resource this site is!

Nov
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Re: Gifting a new car to our daughter - gift tax?

Post by MikeG62 »

Doctor Rhythm wrote: Tue Oct 13, 2020 10:42 pm ...I suppose you could also buy it for yourselves, go joy-riding, and then give it to her later as a slightly depreciated used car.
I was thinking the same thing:-)

The old rule of thumb is a car depreciates something like 10% the moment it is driven off the lot.
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Gill
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Re: Gifting a new car to our daughter - gift tax?

Post by Gill »

Watty wrote: Wed Oct 14, 2020 10:17 am
novembre wrote: Tue Oct 13, 2020 2:42 pm We are a retired couple in our early eighties.
....
What is the best way to go about this?
It is much more of an issue with teenagers and kids in their early 20s but people have given kids cars then been sued when the kid was in accident. This is usually when the kid had a known history of reckless driving, drugs, alcohol abuse, etc.

If anything like that is going on then you may want to check with a lawyer about giving your kid a car.

The parent may not lose the lawsuit since there are lots of issues with being sued like that but they would still need to deal with the lawsuit.
Are you saying this is a risk even when car has been titled in child’s name? This seems a stretch but I haven’t completely adjusted to this litigious society.
Gill
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Re: Gifting a new car to our daughter - gift tax?

Post by Watty »

Gill wrote: Fri Oct 16, 2020 7:41 am Are you saying this is a risk even when car has been titled in child’s name? This seems a stretch but I haven’t completely adjusted to this litigious society.
I am not a lawyer but that is my understanding. Giving someone who has a history of DUI a car is could be considered about the same as giving someone with history of violence a gun. If they then go out and hurt or kill someone then you likely would be sued.

Suing someone and actually winning a lawsuit are not the same thing though. It may be very difficult for someone to actually win a lawsuit like that but they may be hoping that you will settle to avoid paying the legal fees to defend yourself and take even a small chance of losing a large lawsuit.
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Re: Gifting a new car to our daughter - gift tax?

Post by Gill »

Watty wrote: Fri Oct 16, 2020 10:05 am
Gill wrote: Fri Oct 16, 2020 7:41 am Are you saying this is a risk even when car has been titled in child’s name? This seems a stretch but I haven’t completely adjusted to this litigious society.
I am not a lawyer but that is my understanding. Giving someone who has a history of DUI a car is could be considered about the same as giving someone with history of violence a gun. If they then go out and hurt or kill someone then you likely would be sued.

Suing someone and actually winning a lawsuit are not the same thing though. It may be very difficult for someone to actually win a lawsuit like that but they may be hoping that you will settle to avoid paying the legal fees to defend yourself and take even a small chance of losing a large lawsuit.
Tort liability has greatly expanded since I was in law school but I realize plaintiff’s personal injury lawyers need to pay for their billboards and TV advertising somehow so they are willing to allege anything and develop legal theories far beyond common sense.
Gill
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Re: Gifting a new car to our daughter - gift tax?

Post by JackoC »

Gill wrote: Fri Oct 16, 2020 7:41 am
Watty wrote: Wed Oct 14, 2020 10:17 am
novembre wrote: Tue Oct 13, 2020 2:42 pm We are a retired couple in our early eighties.
....
What is the best way to go about this?
It is much more of an issue with teenagers and kids in their early 20s but people have given kids cars then been sued when the kid was in accident. This is usually when the kid had a known history of reckless driving, drugs, alcohol abuse, etc.
If anything like that is going on then you may want to check with a lawyer about giving your kid a car.
The parent may not lose the lawsuit since there are lots of issues with being sued like that but they would still need to deal with the lawsuit.
Are you saying this is a risk even when car has been titled in child’s name? This seems a stretch but I haven’t completely adjusted to this litigious society.
Gill
If it's actually a child, as in minor, you have potential exposure even with car registered in that minor's name and separately insured, for a civil award that exceeds the insurance limits. Same could be true for an adult child who is a dependent (for example claimed as such on a tax return). Or if the parent is somehow instrumental in the particular incident, but you don't have to be parent for that to be true (host someone at your party, they get obviously drunk and you make no attempt to dissuade them from driving). If non-dependent adult child you have risk to let them use *your* car, but it's just speculation on 'the crazy legal system could do anything!' IMO to say you have exposure if you give them a car they legally register and insure in their own name, rather than a real world risk. And if you follow the advice of several posts to avoid gift tax paperwork on a $30k+ car by giving <$30k per couple in money over two tax years and adult kid buys the car, I don't think it's realistic to even bring up liability. Unless you insert some crazy set of facts which would challenge the whole premise of giving a car on a common sense basis ('my adult kid's license is revoked for DUI but I'm looking for a way to get a dealer to sell them a car...' :happy )
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Re: Gifting a new car to our daughter - gift tax?

Post by JediMisty »

prairieman wrote: Tue Oct 13, 2020 10:58 pm
HueyLD wrote: Tue Oct 13, 2020 2:47 pm If you don’t have $23.16 millions to give away, you have no tax issues.
Federal only. Some states have much lower limits that many bogleheads’ estates potentially meet.
I like the idea of gifting the money in December and January just to avoid the headache of filling out the form.
+1. My home left me her house. Really small, modest place. After expenses and other bills, my sister's share was less than 2 years of the max gift tax. I gave her a check right away for the max for that year, and the balance in January of the next Easy peasy. She spent both checks immediately. Mine was invested.
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Re: Gifting a new car to our daughter - gift tax?

Post by egrets »

Jack FFR1846 wrote: Wed Oct 14, 2020 8:23 am You can avoid the "gift limit without reporting" by handing daughter 2 checks, if you are currently married. $15k check from husband. $15k check from wife. Or if daughter is married, $15k check to daughter, $15k check to son in law.

For those saying under $23M doesn't matter.....well, that depends on the state. Mass and several other states have a $1M lifetime limit and above that, a cliff that taxes from dollar #1.

A known loophole in Mass. You buy the car, register it in your name, keep it 6 months. Then gift it to daughter. In Mass, there's a form for transfers from family members. You do not put any value anywhere on the form and you leave the value blank on the title (and if you don't, the registry worker will cross out whatever number you put in there anyways). There is no sales tax. One might say that the value is zero. I've done this several times (not with a new car) from my mom and DW's dad. I've always thought it would be the way to get an exotic car without paying sales tax. My sister in New Hampshire could buy a Lamborghini in New Hampshire, where there's no sales tax. Register it for 6 months, then give it to me. It's a loophole that I would bet others have used since I'm sure I'm not the only one to figure it out.
Rhode Island has a similar weirdness about sales tax when a family member sells a car to another family member. We got very conflicting answers about this, but down to the wire at the Registry there was no sales tax.
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