consequences if we give a car to Mom?

lindy_444_2009July 1, 2009

My mother-in-law needed a new car 3 years ago. My husband and I were flush with income, business was good, and we bought a new car for her. Her credit is crap (bankruptcy within the past 10 years, I think) so the car was purchased in my husband's name. We have just paid it off and were thinking we would sign title over to her rather than keep it in his name while letting her drive it. It's her car anyway and we don't want the liability any more of owning it while she drives it, plus we want her off our insurance policy (she's not a good driver, and a fender bender she had last year made OUR auto insurance rates go up too).

What are the consequences if we sign the car over to her? It's a 2007 Honda Civic, Kelley Blue Book value around $11,000 or $12,000 I think ... is that some IRS threshold for gifts? If she filed for bankruptcy (I think it was 7 years ago?) can she not own assets, can they be seized? Should we have her pay us $100 for the car or something so it's a sale to her rather than a gift?

Any help appreciated ...

Lindy

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jkom51

Contact your state DMV. It's usually just a simple form that accompanies the title document, which you will receive from the financing institution. Sometimes there's a minimum charge for processing the transfer.

Sale price can be zero, regardless of the worth of the car. Only assets owned at the time the bankruptcy is filed are counted. Assets acquired afterwards are not part of the original bankruptcy estate.

The gift tax limit is $13K/annually. You file a simple form to the IRS with your next tax return, no tax due; it's just a record-keeping document for use in determining the total Unified Gift Tax limit in case you die, which is $1M per person total from each estate (e.g., you and your spouse have two separate estates and can give no more than $1M per person in gifts tax-free over your lifetime).

    Bookmark   July 1, 2009 at 6:10PM
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joyfulguy

In this area, you'd have to pay provincial sales tax (possibly Federal as well), on the price of the sale ... and if it's unreasonably low, they have a list of appropriate prices for every model of car, and that'd be the figure that they'd use for assessemnt.

Why buy MIL a new car?

If she's prone to accidents ... get her an old beater, in reasonably good condition, that won't feel as scandalized if it gets a dint inflictd on it, here and there.

ole joyful

    Bookmark   July 3, 2009 at 1:43AM
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jkom51

Joyful, I don't think they're buying her a new car. They're just transferring title on the car they bought her in 2006 or 2007.

Your point about sales tax is a good one, but that's why I suggested contacting their state DMV (Dept. of Motor Vehicles). In the US tax code a gift can be cash or asset, no distinction, and sales tax is never charged on a gift. If they are selling it to her, even for $1, then sales tax does have to be collected.

I've transferred two cars with modest residual value, with a zero sales price both times, in CA. It's never been questioned, I only have to pay the minimum processing fee (which was $35, but has doubtless gone up with the blow-up in CA's budget crisis, LOL!).

    Bookmark   July 3, 2009 at 10:55AM
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stargazzer

I would think it would fit into the gift category, but don't know for sure. You can gift so much money a year without taxes. What ever it costs I would get it off my insurance.

    Bookmark   July 4, 2009 at 9:24PM
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jkom51

>>You can gift so much money a year without taxes.>>

To be precise, you can gift anything tax-free that is VALUED at $13K/annually or below. It can be stock certificates, a percentage of house ownership, cash, car, etc. etc. As long as you have a valid appraisal of worth, that should be all you need (in case you get audited).

And if your own estate when you die will fall below the $1M Unified Gift Tax limit, it wouldn't matter how much you gift to someone. My MIL, for instance, has an estate worth less than $1M. My DH is the only child and sole primary beneficiary; she gifted us $280K in one lump sum to pay off our mortgage. All she had to do was report it to the IRS as a gift; there was no tax due on either side.

    Bookmark   July 4, 2009 at 10:56PM
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pris

If I remember correctly, being a close family member has a bearing on the title transfer fees and/or state sales tax amount. I would check with the county courthouse. They can tell you the most advantageous way to transfer the title over to your mother. The gift tax rate is minimal but I think a transfer to a family member is less and has no effect on income tax for the value of the "gift".

    Bookmark   July 24, 2009 at 11:33PM
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jkom51

>>The gift tax rate is minimal but I think a transfer to a family member is less and has no effect on income tax for the value of the "gift">>

There is no difference whether you are giving a gift to a family member or to a perfect stranger. The federal tax rules are the same in either case. pris is correct that the state tax rules on transfers may differ, so you should definitely check with the county or state tax agency.

The gift rate tax is NOT minimal. On the contrary, if you go over the $1M unified lifetime gift exclusion (per recipient), the tax is quite high  on the giver, not the recipient! The gift tax has nothing to do with income tax, but is instead related to the federal estate tax limits.

There's a good explanation on Intuit's Turbotax site that I found when Googling. Gift taxes are not the easiest taxes to understand, but it is worth the effort if you have a large estate and are gifting to people who are heirs, whether 'per stirpes' or named in wills/trusts.

Here is a link that might be useful: Gift tax explanation

    Bookmark   July 25, 2009 at 3:09AM
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pris

jkom51 I was referring to the gift tax as pertains to sales tax on the title transfer. If you stick to the OP's question then estate and gift tax as regards IRS does not come into play here as the value of the vehicle is less than the maximum allowed.

    Bookmark   July 26, 2009 at 10:26AM
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jkom51

>>then estate and gift tax as regards IRS does not come into play here>>

Well, yes and no. Although the annual gift tax exclusion limits have gone up to $13K, the MAXIMUM allowable Unified Gift Exclusion limit has remained at $1M total per person.

As we don't know how large an estate the OP has, I didn't think we should make the automatic assumption that they don't have much more to give away.

One can never tell how large (or small, for that matter) one's estate can become in the future. I know at least half-a-dozen people who thought they were (what I call) "modest millionaires" - here in CA one's home can be a huge asset when held over time, plus they were highly skilled upper management (but not C-level execs). But job opportunities provided a tremendous lift when they were there in the right time and place, and less than 15 yrs later they all ended up with estates totaling between $4-12 million.

All of them had thought they would do well - but not THAT well. So I think it's better to be precise about exactly what is allowed, not just in a single instance, but in an overall financial picture.

    Bookmark   July 26, 2009 at 8:51PM
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