Giving A Car To Your Youngster
By Julian Block
A car to stay away from: A bumper sticker spotted in a Washington suburb warns: “I may be an IRS agent. You never know.”
The Wall Street Journal, February 8, 1995.
If you plan to give your youngster a car as a gift, you’ve doubtless resigned yourself to high prices putting a bad dent in your wallet. But insurance premiums are another story. There is something you can do to cut your costs considerably, depending on how you handle the gift. Here are some points to keep in mind.
Insurance premiums. If only one car is insured and your child is the principal driver, the insurance tab stays the same whether the car is registered in the name of your child or yourself. But if you already insure a car, registering the new car to be used by your child in your name can provide a worthwhile savings because many insurance companies allow a discount on most coverage options on a second or third car.
Suppose, for example, that you are a three-car family. You and your spouse are the principal drivers for two cars, and your teenage son is the principal driver of the third one. You forfeit the discount if you register the car in your son’s name.
Of course, registering the son’s car in your name does expose you to the possibility of a lawsuit in case of an accident. But you can deal with this drawback by making sure to carry higher liability limits on your policy or by purchasing a personal umbrella policy. In advance of a final decision, it is prudent to consult with a qualified insurance adviser.
Casualty Losses. Another fact that may make it advantageous to register ownership in your name is that a casualty-loss deduction is available only to the owner of the damaged property. Thus, even if you get stuck with the bill, you get no tax write-off for damage or destruction of a car registered in your child’s name.
This was made clear to the Omans, a Maryland couple who gave their 20-year-old son the money to buy a sports car that he registered in his name. Before he even acquired collision coverage, one of his friends totaled the car. When filing time rolled around, the couple claimed a casualty loss. But the Tax Court sided with the IRS and threw out their deduction. Since they kept no strings on the gift to their son, the car – and the casualty loss – was his.
Note, though, that uninsured casualty or theft losses of cars not used in your business are deductible only to the extent such losses exceed 10 percent of your adjusted gross income, plus $100 for each casualty or theft.
Partial disallowance of certain deductions for persons with AGIs above a specified amount – $137,300 for tax year 2002. Casualty and theft losses are not subject to this partial disallowance.
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