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Selling a car... as a gift

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Hello. I am in CA, and am selling my car. Now, this girl wants to buy my car, but actually have me gift it to her. The sales price was going to be $10,850. This falls below the IRS limit for non-reportable gifts, so will I be ok to accept the money, and gift her the car?

I believe she told me she wanted to avoid the sales "use" tax from the DMV, but if there is something shady about this, then I need to know.

Can anyone shed some light on this?
 


racer72

Senior Member
Yep, there is no way to avoid the tax. When you "gift" her the vehicle, she will be required to transfer the title to her name. At this time, she will have to pay tax on the vehicle, either the sale price of the vehicle or fair market value, which ever is higher. The fair market value will be much more that the sale price of $0 and taxes will be due on that amount. If her plan was feasible, everyone would be doing it to avoid taxes. Thus the fair market value tax to close a loophole.
 
Thanks Racer, but I looked on the DMV website, and it seems that with form 256, you can avoid the use tax if the transfer is listed as a gift. Only the transfer fee and smog transfer fee would apply, from what it looks like.

It's not really a big deal to me, but I do want to sell my car, and she really wanted to do it this way... would I run into any problems?
 

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