How do you avoid taxes on gifts such as a car?

Question

I used to live with my dad in Pennsylvania. During that time, I drove 'my' car but it was titled in his name. Since then, I moved to Florida (he still lives in PA) and brought my car with me. He now wants to change the title to my name. Is there a way to do this so neither one of us gets taxed out the wazoo? Is it better he "sell" me the car for $5.00 or present it as a gift? Is there a difference between PA tax law and FL tax law in this matter or is all federal?

Answer 1

There are 2 issues.  Federal gift tax if the FMV is more than $12,000.  That's form 709 and your dad would fill it out.

Transfer tax at the state level.  My state noticed the "gifts" and changed their statute to read FMV.  Eg, if the car is worth $12,000, they want the tax based on $12K when you register the car in their state.

(It looks like Florida only charges $100.)

Answer 2

Just change the title over to your name.  PA doesn't tax gifts unless they are given for past or future services, and FL doesn't have a state income tax, so you're OK there.  For federal, if the value of the car at the time of transfer is under $12,000 then there is no need for either of you to even file anything on it.  If it's value is over that, then your dad will probably have to file a gift tax return for the amount over $12K but is very unlikely to owe any tax on the gift.

You won't report it on your tax return.

Answer 3

For the vast majority of people gift tax is a non-issue.  Unless your father is a multi-millionaire and you are an only child don't worry about it.

Answer 4

Get the transfer form from your dmv. It specifies if transfer between family. There may be a transfer fee but that might be all.