Gifting a car to a grandchild: title, taxes, and paperwork

To give a car to a grandchild, the grandparent signs the title over and records a $0 gift on a bill of sale or the state's gift affidavit. Whether the grandchild owes tax depends on the state's exemption rules, and states draw the family line in different places.

Three states show the range. Michigan and Texas name grandparents and grandchildren directly in their family transfer rules. Wisconsin leaves grandchildren off its family list, but a separate gift exemption still covers a car handed over for nothing. Our main guide to gifting a car to a family member covers spouses, parents, and children.

Why $0 beats $1 in Wisconsin

People often ask for the smallest amount that will transfer a Wisconsin title to a granddaughter. The answer is zero. The Wisconsin Department of Transportation (WisDOT) says that when no money, tangible property, or services change hands for the title, the purchase price is zero.

The family exemption list on the same page covers a spouse, an ex-spouse, a parent, a child or the child's spouse, in-laws, a stepparent, and a stepchild. Grandchildren are not on it. What saves the transfer is a different line, the "Gift" exemption, which WisDOT describes as a vehicle "given to you with no money exchanged."

Picture Joan in Eau Claire giving her 2013 Toyota Camry to her granddaughter Emma. If Joan writes $0 and checks the gift exemption, Emma owes no sales tax. If Joan asks for a symbolic $1, the deal becomes a sale, and since grandchildren are not on the family list, Emma owes tax on the $1 price. The amount is tiny, but the paperwork now describes a purchase, and the Wisconsin Department of Revenue (DOR) reviews every exemption claim.

Michigan runs on different rules, and the numbers are bigger. The Michigan Department of Treasury (Treasury) lists "Grandparent or grandchild" among the relationships that qualify for its use tax exemption. Without the exemption, Michigan charges a 6% use tax on the greater of the purchase price or the retail value.

Say Frank in Grand Rapids gives his grandson a 2017 Ford Fusion with a retail value of $12,000. The grandson owes no use tax. If Frank gave the same car to his nephew, nephews do not qualify, so the nephew would owe 6% of $12,000, or $720, even with a $0 price. Treasury does not ask for proof at the Michigan Secretary of State (SOS) office, but it can request birth or marriage records later, and an invalid claim carries a penalty of up to 100% of the tax. For a grandchild, the proof usually means two birth certificates: the grandchild's, naming the parent, and the parent's, naming the grandparent.

In Texas, a grandparent is an eligible donor for the state's flat motor vehicle gift tax, which replaces the regular percentage tax. The Texas Comptroller of Public Accounts requires both the giver and the grandchild to complete a joint, notarized Form 14-317, Affidavit of Motor Vehicle Gift Transfer, along with Form 130-U. County tax office staff may witness the signatures in place of a notary if the signer appears in person.

Watch the word consideration in Texas. The Comptroller counts taking over a loan, cash, labor, or a trade as payment. If a grandson agrees to keep making his grandmother's car payments, the transfer is no longer a gift for tax purposes. The same is true of a transfer to someone outside the eligible list. If Lupe in Austin hands her 2018 Honda CR-V to her grandson, the flat gift tax applies. If she hands it to a family friend for nothing, Texas treats it as a sale, and standard presumptive value procedures may set the taxable price.

The $0 paperwork and federal gift tax

A gift still needs a clean paper trail. The grandparent signs the seller section of the title, writes the odometer reading if the car requires one, and fills in a vehicle bill of sale that shows $0 and says why. A short statement like this one works in any state:

I, [grandparent's full name], give the [year, make, model], VIN [number], to my grandchild, [grandchild's full name], as a gift. No money, property, services, or assumption of debt was exchanged for this vehicle. Odometer reading at transfer: [miles].

Federal gift tax enters the picture only when the car is worth more than the annual exclusion. The Internal Revenue Service (IRS) says gifts that are not more than the annual exclusion for the calendar year are not taxable gifts, and the exclusion applies separately to each person who receives one. Most cars given to grandchildren fall under that line. For a newer vehicle worth more, the donor generally handles the gift tax side, and the IRS posts each year's exclusion amount on its gift tax page.

Timing matters too. If a grandparent dies before signing the title, the transfer becomes an inheritance. Wisconsin has a separate Heir exemption for that case, asks heirs to mail the application to WisDOT rather than use its online system, and treats buying a vehicle from an estate as taxable.

Sources

• Wisconsin DMV: eMV Public FAQs, purchase price information
• Michigan Department of Treasury: Transferring a Vehicle Title to a Relative
• Texas Comptroller: Motor Vehicle Tax Guide, Gift Tax
• IRS: Frequently asked questions on gift taxes