Gifting a Car vs. Selling it for $1 In Michigan
In Michigan, it’s better to gift a car than sell it for $1 because the recipient won’t have to pay sales tax on the vehicle.
Written by Mary Cahill
Reviewed by Kathleen Flear
It’s better to gift a car in Michigan rather than sell it for $1 because there won’t be any sales tax applied to a gifted vehicle.
If you have a family member or friend in need of a vehicle, you may want to gift them a car as a way to help them out. In the past, people often sold a vehicle for $1 instead of gifting it as a way to pay next to nothing in sales tax. But, the amount of sales tax attached to a $1 car will actually be applied based on the car’s fair market value—not $1—which is why gifting is the preferable option.
To help better understand what’s involved with gifting a car in
Michigan
, we’re here to shed some light on the matter. We’ll discuss the taxes and fees associated with gifting and selling a vehicle and clue you in on what documentation is needed to keep the process running smoothly. Is it better to gift a car or sell it for a dollar in Michigan?
A selfless deed like giving away a car means a lot to both the donor and recipient, but if you’re wondering whether it’s better to sell the car for $1 or gift it in the state of Michigan, we’re here to tell you that gifting is the better option.
The reason for this is that when you sell a car in Michigan, there’s a sales tax applied. When people sell a car for $1, they assume that the applied sales tax will be on the sale price—but it’s actually set to the car’s value.
If you gift the car, the only tax you might have to pay on the vehicle is the gift tax.
In 2023, the IRS will allow you to give someone up to $17,000 without having to pay a federal gift tax. In 2022, the tax-free limit was $16,000. As long as the car you gift has a fair market value under these limits, no tax will be applied.
How gifting a car works in Michigan
Whether you’re looking to give away your old car before purchasing something new yourself or gift someone special in your life with a vehicle from the dealership, there’s some important info that you and the gift recipient need to be aware of.
1. Pay off any outstanding loans
You cannot gift a car to someone in Michigan if there is a lien on it. The vehicle must be completely paid off in order for the title to be transferred to the giftee.
Gifting a vehicle means that the title will be transferred to the giftee since they are the new car owner. When a car has a lien, the title is in possession of the lender until all payments have been satisfied. You won’t be able to gift the car if you aren’t in physical possession of its title because it’s technically not yours to give.
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2. Negotiate the terms of the gift
If you plan to gift a car you purchase from a dealership, it’s probably best to take the gift recipient along with you. That way, the recipient can give their input during the shopping process and get a first-hand explanation of how the financing will work—plus the dealership can help out with titling the vehicle.
There’s also the option of giving a gently used car you already own as a gift. Of course, this isn’t as simple as parking the car in their driveway and saying “Surprise!,” there will be paperwork to complete to finalize the deal.
It’s also important that you have a conversation with the recipient about the real-life, ongoing costs of car ownership, like:
As much as you’d like to help, there may not be much sense in gifting a car to someone who isn’t able to manage the expenses that come with it.
3. Create a bill of sale
This may seem counterintuitive if you're gifting a car in Michigan, but you’ll actually want to write a bill of sale for a car you give as a gift. The purpose of a bill of sale in this scenario is to create a physical record of the vehicle’s ownership changing hands.
You can complete a
Michigan Motor Vehicle Bill of Sale
form and check off the box that indicates the vehicle is being given as a gift.Whether you fill out the Michigan Motor Vehicle Bill of Sale form or decide to create your own document, be sure to include the following:
- Make, model, and year of the vehicle
- The Vehicle Identification Number (VIN)
- Current odometer reading
- License plate number
- Full names, addresses, and signatures of the gifter and giftee
4. Transfer the car title
You will need to
schedule an appointment
with Michigan’s Secretary of State (SOS) Office in order to transfer ownership of a gifted vehicle’s title. Both you and the gift recipient should be present for the office visit and present a valid driver’s license or ID.You’ll also need to bring the vehicle you’re gifting and show
proof of insurance
for it. The title transfer fee in Michigan is $15.Make sure you completely fill out all applicable fields of the title. You will need to write “GIFT” in the section that asks for the purchase price. Then, you and the giftee will sign the title to complete the transfer of ownership.
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As we mentioned earlier, the gifted vehicle must be insured before the Michigan title transfer can be completed and the vehicle can be registered in the giftee's name.
Assuming that the giftee will be purchasing their own
car insurance
policy for the car, it’s crucial that they buy a minimum of liability coverage
. The minimum liability limits in Michigan are as follows:
- $100,000 of bodily injury per accident
Michigan is a no-fault state, which means that drivers involved in an auto accident will file a claim with their own insurance company. For this reason, drivers must carry the following coverage in addition to a minimum of liability insurance:
- Property protection insurance
The average liability policy for Michigan drivers costs around $946 per year, while full coverage (that includes
collision coverage
and comprehensive coverage
) has an annual cost of around $2,345. What to keep in mind when gifting a car in Michigan
There’s no denying that gifting a car is extremely generous, but make sure your good intentions go according to plan by keeping these things in mind:
- Taking the giftee to the car dealership with you if you want to purchase a new car for them is a good idea because it includes them in the shopping process and helps you choose a vehicle that both parties are comfortable with.
- If you want to gift a car to a newly licensed teen driver, keep in mind that insurance costs are much higher for new drivers in this age group.
- In order to give someone your vehicle as an inheritance, this should be specified in your will. Otherwise, the surviving spouse or heir will need to visit a Secretary of State office with the title and a copy of the death certificate to transfer the title into their name—so long as it isn’t part of a probated estate.
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Do I have to pay sales tax on a gifted car in MI?
No. A gifted vehicle will not have sales tax attached to it.
How much does it cost to transfer a car title in Michigan as a gift?
The title transfer fee in Michigan is $15.
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