Another question for those who know about taxes

[Planogirl]

DS was given a used car as a gift by a family friend. This friend inherited the car from a lady who had recently passed away and he didn't need it. The car is an older model but I'm assuming that blue book would apply as far as value goes. DS is 20 and in college. He does not have a job. His income is little enough that we can list him as a dependent.

Does anyone here know what we can expect?

 

[tar heel]

What is the question? The tax implications of this gift should be minimal.

There is no income tax on a gift unless it's a lot bigger than this one, so his income is irrelevant.

No idea how this works in your state, but in North Carolina, he would pay tax on the car when he registered it and applied for the title. He would need a bill of sale of some sort when he did that even if the price was "love and affection." I don't remember how the tax rate is determined if no money passes hands. Here, he would not necessarily owe taxes on book value even if he had bought it as you often can buy a car for less than that.

 

[Cheshire Figment]

Anything that is received as a gift has no taxable consequence to the recipient.

If the fair market value was over $14,000 at the time of the gift, the donor is technically required to file a Federal Gift Tax return, but that is something that affects the donor and not the recipient.

If there is proof that sales tax was paid in Texas on the car, possibly there will be no need for sales tax to be collected when the car is registered. That is something that needs to be checked with the DMV. All he should be liable for is the Title and Registration fees.

Mike (CPA Retired)

 

[scrapquitler]

DS was given a used car as a gift by a family friend. This friend inherited the car from a lady who had recently passed away and he didn't need it. The car is an older model but I'm assuming that blue book would apply as far as value goes. DS is 20 and in college. He does not have a job. His income is little enough that we can list him as a dependent.

Does anyone here know what we can expect?

Income tax, no consequence. In Ct, you would have to pay sales tax (6.35%) on the fair market value of the car or the amount of the bill of sale. You would also have to pay property tax annually based on the value if the car: but both those things I mentioned will vary locally.

 

[Planogirl]

Thanks for the information. We will be researching this in the coming week but it's nice to know where to start. The IRS website says that the donor pays the tax (?) but certain exclusions apply. In this case the donor will NOT be paying any taxes!

 

[Green Tea]

The rules might be different when the car is given by a non family member, but I can my child in TX a car and all that was required were the registration fee. No sales tax was paid. Irrelevant on income taxes also.

 

[tar heel]

OP - you don't need to worry about the IRS at all. There are no federal taxes due. Just figure out what the state of Texas and your local government expects, and you'll be good to go.