A married couple purchase a new automobile and decide to gift their old one to their child.
The older vehicle, which originally cost $45,000, has a FMV of $20,000 and is titled in the name of only one parent.
Must the parents go through the bother of having the auto re-titled in both names in order to make the gift jointly, thus avoiding having to report it?
What is the giftee's basis?
The answer is different depending on whether we're talking about a community property state. If it is community property, it's considered a gift half from each parent and no gift tax return is required. In non-community states the result is the same if the funds can somehow be traced back to having belonged to both parents equally.
In non-community states, there is still no reason to re-title the car before transferring it to the child. If the car in fact belongs to one of the parents and its value is higher than the annual gift tax exemption, both parents can file a gift tax return and elect that the gift be split - in other words treated as having been given half by each. But to do that the return is required.
Technically re-titling the property would not accomplish the goal without a gift tax return, because it is considered a step-transaction. If it is done for the purpose of effecting the transfer to the child, it is ignored for gift tax purposes.
Stu
If you are in a community property state, both spouses are considered to own the car equally. So, there would be no gift tax issue.
Otherwise, the solution is to file a gift tax return & elect gift splitting, which will solve the matter.
Re-titling the car & gifting it could be ignored by the IRS.
The donor's gift would be valued at $20,000. That would be the basis to the donee. (lower of cost or fmv)
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