is a better option than selling it for $1 in New York. There is no gift tax in New York and the giftee can apply for a sales tax exemption along with the title transfer.

Is it better to gift a car or sell it for a dollar in New York?

In New York, the DMV has specifically designed a process to manage the gifting of free vehicles. Ultimately, it’s better to gift a car than sell it for $1 in New York.

Most people are concerned with taxes when trying to decide whether to gift or sell a car. In New York, the person being gifted the vehicle can get a sales tax exemption by filing the

Statement of Transaction Sales Tax Form

New York doesn’t have a gift tax. It’s important to use the gifting process to help New York State to properly assess the value of the car. Entering “$1” as the value is not the proper way to manage the gifting process, as that’s a false valuation of the vehicle.

The DMV considers gifted cars to have been transferred with their full market value intact. So for record-keeping and future taxation purposes, New York asks people to use the vehicle gifting process.

New Yorkers still need a bill of sale signed by both parties to serve as legal proof that everyone agreed to the gift. On this document, it’s okay to enter “$0” in the price section.

MORE:

New York car sales tax calculator

How gifting a car works in New York

Need more information? Here’s a guide to the basics of the New York car gifting process.

1. Pay off any outstanding loans

When you gift a car with an outstanding loan to someone, then you could be gifting them the loan, too. Don’t do that!

If you can, pay off your auto loan and get it removed before gifting a car in New York. If you can’t, then be sure to

speak with your lienholder

. Loans can complicate the title transfer process, so start the conversation with your lender early, and be prepared to negotiate.

2. Negotiate the terms of the gift

This could be a little tricky if the gift is a surprise. However, it’s very important to figure out the conditions of the gift.

For instance, who will be responsible for ongoing fees like gas and

car insurance

? Are you certain that they are prepared to handle these costs? Will you or the giftee pay for the transfer and registration fees?

Have a conversation with the giftee to discuss specifics and write down what you decide.

Here are some numbers to keep in mind:

Minimum

liability insurance

in New York: $2,892 per year

Full coverage insurance in New York: $3,153 per year

Vehicle maintenance costs in New York: $700 to $1,700 per year

Fuel costs in New York: $740 per year

While costs vary depending on usage and vehicle type, it’s essential to make a plan for these expenses before proceeding with the gift.

MORE: Car loan in New York 2023

3. Create a bill of sale

Anyone can create a bill of sale. This is a document that creates a legal record of this moment. You can write a bill of sale even for a gifted car where no money changed hands.

Download and print out the

New York DMV’s Bill of Sale

. Write “$0” on the price line and get both parties to sign the document. You must also include the vehicle identification number, make and model, odometer reading, license plate number, and contact information for both parties. In Section 4, tick the box associated with the type of gift transaction. Don’t forget to fill out Section 6 if you are gifting the vehicle to someone outside your family.

4. Transfer the car title

This is the important part! You can hand over the keys to the lucky recipient, but without a proper title transfer, you will still be legally responsible for the vehicle. You have 10 days to complete this process after gifting the vehicle.

To transfer a title in New York, get your documents in order first. Get both parties to sign the vehicle title. Print and fill out the

Registration/Title Application Form

and the

Statement of Transaction Form

. The recipient should prepare proof of New York insurance and both parties should bring a photo ID—if necessary, bring proof of car inspection and

emissions testing

Now, both the owner and the recipient can visit a New York DMV with all of the required documentation and a means of paying the fees.

5. Fill out a Statement of Facts to avoid sales tax

If the vehicle was gifted to a family member, use the

Sales Tax Form

to avoid sales tax. For these purposes, New York only considers a spouse, a parent, a stepparent, a child, and a stepchild to be eligible family members.

Nieces, nephews, and grandparents are not eligible for the tax exemption for gifted vehicles under New York laws.

6. Purchase insurance

All drivers must legally carry

state-mandated minimum car insurance

in New York. To register the car under their name, they must provide

proof of insurance

If the giftee already has a policy, they can contact their insurance company to ask about adding a new car. However, it’s wiser to compare rates with various companies—some companies offer better

student discounts

, for instance, whereas others will reward low-mileage drivers. A little research here could save hundreds of dollars in the long run.

MORE: Penalties for driving without insurance in New York

What to keep in mind when gifting a car in New York

Gifting a car instead of selling it for $1 in New York is easier and better for both parties. And what a gift! Before you clean out your glove compartment and transfer ownership, here are a few additional things to consider:

If you want to gift a new car, then it’s better to bring the family member to the dealership with you. This way, they can test drive the vehicle and participate in the car-buying process.

Every teenager dreams of having their own car—but

young drivers

pay some of the highest insurance premiums. If you’ll be footing the bill, think twice.

There’s a special gifting process to follow when the

vehicle owner is deceased

MORE: Everything you need to know about driving in Manhattan

"I was nervous to buy insurance for my first car because I had heard horror stories about the insurance prices in New York. After not even two minutes, I found four quotes from
Jerry
under $125/month. By the end of the night, I was on the road safe and insured!” —Reuben R.