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To avoid sales taxes and questionable paperwork, it's better to gift a car in New Jersey instead of selling it for $1.

If you're thinking of gifting your car to a family member or a friend, good for you! Often, it’s the high price of a car that prevents a driver in need from getting on the road. If you're reading this article, we don't need to talk about the why, just the how. For example, how do you minimize the fees and paperwork associated with a good deed?

Today, we'll examine two popular options for giving away a vehicle in New Jersey: gifting it versus selling it for $1. You can find a step-by-step guide to the best method below.

MORE: How to lower your New Jersey car insurance costs

Is it better to gift a car or sell it for $1 in New Jersey?

Every car sold in New Jersey is subject to a

6.625% sales tax

, regardless of whether it's new or used. Sales tax is applied to the vehicle’s purchase price and collected by the

New Jersey Motor Vehicle Commission (NJ MVC)

. You may as well just gift the car and save the recipient the hassle of adding $0.06 to their title and registration fees.

Gifted cars are among the few vehicles exempt from sales tax in New Jersey, meaning you’ll be saving your recipient any additional fees by marking the vehicle as gifted. Besides, it looks better for them to carry a bill of sale marked “gift” than one for $1, which is suspiciously below retail market value for any car.

Have we sold you on the idea of gifting your car? Great! Here’s a walkthrough.

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How to gift a car in New Jersey

Gifting a car in New Jersey is pretty simple. Fortunately, there's no need to negotiate with a car salesperson (although you'll still have to discuss the terms of the gift with the recipient). Instead, you can skip straight to writing the bill of sale, transferring the title, and registering the used car.

If you’re gifting someone a new car, you'll need to go to a dealership, where all the paperwork will be filled out for you. Don't forget to take your lucky giftee along to pick out their new car and get involved in the financing process.

Resolve any outstanding liens

Do you own the car you want to give away? It never hurts to check if your used car has a lien on it since most people don’t enjoy a gift with a debt attached.

If you’ve paid off your loan, get the lien removed by the debt holder. If someone has agreed to take over your loan, you should both visit the dealership or bank that loaned you the money. It’s the only way to officially release you from your contract and get them signed up as the new payee. You can only avoid this step if you're gifting the car to someone whose name is already on the loan (i.e. you co-financed it).

Decide what’s included

It might seem gauche to discuss the financial details of a gift, but the high maintenance costs of a car demand it. You and your recipient should agree on who pays what.

Here are a few of the expenses to discuss:

Title transfer fee: $60

Registration fee: $35.50 to $84

Car insurance

: $2,295 to $2,826 per year

Maintenance: $1,186 per year

Fuel: $1,500 to $2,500 per year

Consider the time you spend sitting down with your loved one and making a plan as part of the gift. You'll both be happier as a result.

Write a bill of sale

You should still write a bill of sale even if you’re gifting a vehicle. It records the transaction and the date, giving you and your recipient proof of what happened.

A New Jersey bill of sale should include:

The car’s year, make, model, odometer reading, and VIN

Your name, address, and signature

The recipient’s name, address, and signature

The date of the transaction

A field labeled “sale price”

Make sure you write "GIFT" in the field labeled "sale price". Don’t fuss with it, because the NJ MVC won’t accept the document if it looks as if it’s been tampered with.

Purchase insurance

By law, every car owner in New Jersey needs

liability insurance

. Your recipient will need to show proof of insurance to transfer the car into their name. Since NJ is a no-fault state, they’ll need more than the usual amount of coverage.

Here’s what should be on their policy:

$15,000 of bodily injury liability per person

$30,000 of bodily injury liability per accident

$5,000 of property damage liability per accident

$25,000 of bodily injury uninsured motorist coverage per person

$50,000 of bodily injury uninsured motorist coverage per accident

$15,000 of personal injury protection (PIP) per person

A limited or unlimited right to sue

Your recipient may also want to consider collision and comprehensive insurance depending on the value of the car, where they live, and their particular driving habits.

MORE:

New Jersey car insurance laws

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Transfer the car title

The bill of sale records when your former car changed hands, but the certificate of title is your recipient’s official proof of ownership.

To begin the title transfer in New Jersey, remove your license plates and bring them to an

NJ MVC

full-service agency location

. You can put them on another car you own if you like, but you can’t give them to a new owner. Complete the seller’s section on the reverse side of the car’s title, then give it to the recipient.

They’ll need to fill in the buyer’s section on the reverse side of the car title using their driver’s license or entity identification number. Then, they should bring the title, the bill of sale, and a complete

Application for Vehicle Registration (form BA-49)

to an NJ MVC office. They’ll also need their driver’s license, proof of insurance, and a payment method.

If you titled the car in another state, they’ll need all of the above plus a completed

Universal Title Application (form OS/SS-UTA)

and purchase order (if the title lacks a New Jersey Dealer Tax Stamp).

If you registered the car without receiving a title (as in the case of some vintage automobiles), you’ll need to gather all of the above plus your registration card, a notarized bill of sale, a completed Universal Title Application, and a tracing or photo of the car’s VIN.

Titling a car in New Jersey costs $60. If there’s a lien on the car, the fee is $85 for one or $110 for two. Your recipient will also need to complete the financing section of a Universal Title Application and bring the lien holder’s information with them to the office.

MORE: How to replace a lost or missing car title

Register the car

Your recipient should be able to register the car when they title it, making it legal for them to drive it on New Jersey roads. The fee will depend on the type of car, but always includes the cost of license plates. To avoid a $25 penalty, the car should be titled and registered by its new owner within 10 days.

Reply to the Division of Taxation

You and the giftee may receive a notice in the mail from the New Jersey Division of Taxation to verify the vehicle's sales tax. Complete the seller's affidavit certifying that the vehicle was a gift. The giftee should fill out the car questionnaire and tick the appropriate boxes to indicate the same. Mail both documents to

the Division’s office in Trenton

That's all there is to it! Tell the giftee to enjoy their new car and ask them for a lift sometime to see how they're doing.

MORE: How to register a car in New Jersey