Is there any tax issues with my mother-in-law selling us a 2006 Jeep Liberty for $1?

Question

My mother-in-law bought and paid for this vehicle in Arizona. She will have the title very soon.

Answer 1

There is. This is not an arms-length transaction because the transaction is taking place between relatives. She is selling the vehicle for less than its real value. The IRS has special rules that apply to these transactions. You pay the tax on the true value of the gift or what one person would typically sell that car to a stranger.

You could talk to a tax accountant as to how best to work this transaction.

You should come up with a true value for the vehicle. That will be the amount the IRS will say is gifted to you. She is allowed to gift you something like $11,000 per person without tax consequences. You will want to verify that amount because it changes periodically. The vehicle is probably worth more than $22,000. Therefore, it would probably be best if the title were transferred from your father-in-law and mother-in-law to you and your spouse. That should cover $44,000 worth of vehicle tax free.

There are other possibilities as well. She could gift your children some money and you could pay her that amount in cash for the car. I don't know if that would fly with the IRS.

You can actually call the IRS and discuss these issues free of charge. After all you need to know the tax implications of various transactions before they are conducted.

Answer 2

The 2006 four-door Jeep Liberty is a compact SUV offered in three trim levels: Sport, Renegade, and Limited. Since the Liberty was slated for a new generation in 2007, not many changes were made in this model year. The big news was the addition of a turbodiesel engine, a 4-cylinder fuel-saver that Jeep says provides the torque of a V8. This move made Jeep Liberty the only vehicle in its class to offer a diesel engine. It replaced the 4-cylinder gasoline engine previously offered on the Liberty and was made available for the 4WD versions of the Sport and Limited trims.

Answer 3

No... The state may not like it, but it is her's to do what she wants with it. The worst thing that will happen is who ever buys the Jeep, will have to pay taxes at the DMV on a $1. at registration and title transfer (lucky folks). She on the other hand won't have to claim her $1. profit at the end of the year. She may have to claim a donation (which is not bad either), something that you might want to check into at your insurance company or your local tax person...they may be able to help you out with this.

Answer 4

depends on the state, some just charge a sales and/or excise tax based on book value or some formula they have to prevent things like this. the dollar thing may raise a flag, weve done it for 500 or something, although i dont remember if that actually made a diff.

Answer 5

Each state may be different. In most states, make sure you have the bill of sale notorized.

I didn't have mine notorized on my Ford Taurus that my sister gave me, and they wanted to charge me sales tax for the book value!! I left and got the notary's signature!

Answer 6

It looks better if you put 100 dollars. We did that with our car in texas....the TT&L look very suspicious upon it though, here in texas they have had alot of fraud issues. We just told them it needed work (even if it is new)

Answer 7

no you just need to take it in and pay the property taxes but tell them it was like $50. the taxes will be lower.

Answer 8

wont be considered fair market value. it might be better to have her gift it to you...check with an accountant