If you have a car that you no longer need and a family member or friend who is seriously in need of transportation, you might decide to simply give the car away as a gift. It allows you to release your responsibility for the car while helping out a loved one. Whether you sell a car or give it as a gift, you still need to have the correct paperwork to make the transaction legitimate.
What Is a Bill of Sale?
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The bill of sale is a contract between a car buyer and seller. The seller commonly draws up the agreement for both parties to sign -- preferably in the presence of a notary public. It includes the description of the car (year, make and model), mileage, any warranty information and the price of the car. It also lists the full names and addresses of the seller and buyer. The buyer must bring the signed bill of sale with him in order to register the car with the state department of motor vehicles (DMV).
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When Giving a Gift
Since you're giving the car as a gift instead of selling it, the amount of the "sale" is zero dollars. So everything on a standard bill of sale stays the same except for the section listing the cost. The bill of sale should also expressly state that the car is granted as a gift. The person who you give the car to must prove that it is a gift to DMV representatives. The exact rules vary by state, so call the local DMV office to get instructions before completing the gift transaction.
Sales Tax
The main reason why you need a bill of sale is so that the department of motor vehicles can decide how much sales tax to charge the car buyer. The sales tax rate varies by state. But since the amount of the sale price is zero, the DMV may either excuse the tax or charge a tax based on the blue book value of the car. In the latter case, the description of the car on the bill of sale (year, make and model) is crucial to getting the car properly registered.
Donating a Car
Giving a car as a gift to someone you know is different from donating it to a charity. In many cases, you don't need a separate bill of sale in order to give the car away to an official charity. You can simply sign the back of the title and provide it to a representative of the charity. The organization may not have to pay sales tax related to the transaction since it is for a charitable cause.