A car is a very common gift especially between family members, it s therefore vital for us to know whether the car gift may attract tax or not. The situations surrounding the issue of the gift will determine the amount of tax the gift will attract. To be more specific, the annual gift limit will have to apply. This then means that the value of the car is what will be used to determine the tax to the car.
Let's take a practical example of a father giving his son or daughter a car gift. If the car is worth $50,000, then the following would happen. For starters, the value of the annual tax limit for the particular year has to be determined. Let's say it is $10,000. Once that is established, all we need to work out is the balance for it is only the amount in excess of the non taxable gift tax limit that will attract gift tax. In our case it will be $40,000. This amount will have to be taxed in full.
There could however be other factors that could reduce the taxable amount further. If the father decides to jointly give the car gift to his son withy the help of his wife, then the minimum gift tax limit would be doubled as both the father and mother are entitled to the limit. This scenario would see the taxable amount reduce to$30,000 since the limit for both mother and dad would total to$20,000.
The aspect of jointly given a gift tone person as in the sample above is commonly referred to as gift splitting. For this situation to be acknowledged, the donors must both consent to the fact that they are gift splitting. This is properly documented by filling a special form 709. This happens because it will eventually help when you file your annual tax returns. It is also worth noting that the gift you give is never at all taxed on the donee or should I call him/her the recipient.
Other than the fact that the donee does not have to pay a single cent on the gifts received. It is also important for them to know that if you receive a car gift and the car gift ends up being used to generate some income, then the donee will have no option but to file his tax returns on the interests or profits accrued from the income generating activity of the car gift.