Consequences of Oprah's Car Giveaway

At the TaxProf blog and the Wall Street Journal they're talking about the taxes on big prizes like "free" cars.

Well, even that's not all. My late mother used to enter contests as a hobby, and among the dozens she entered each week, she never entered one with a car as one of the prizes. That's because, she said, "If we won one it would cost too much." What she meant by that was in addition to the taxes, as the others point out, there are also the fees for license plates and insurance. In some states the licensing fee is based on the value of the car, and could be more, in some cases, than members of Oprah's audience could afford to pay for the privilege of having a new car.

Comments

[Mark B.]

Actually, the cars will be considered prize winnings under federal tax law, and therefore the retail value of the prize must be considered additional income. The amount of the tax would be relative to an individual winner's tax bracket, but in the case of an almost $30K car, that could be upwards of $7000. Winners would need to either 1) Pay the taxes and keep the car, 2) Forfeit the prize, or 3) Sell the prize and pay the taxes out of the profit. Pontiac did offer to cover all licensing and destination fees, so the winners would not have to worry about that.

[Alli Benner]

I think this is just a big phony! She gave away those cars and i bet no one has to pay taxes

[Katie]

Depending in what state a person lives in, there may or may not be license plate fees. Some states have property tax, and in SC, for a brand new midsize car, the property tax would be about $380 for the first year, but significantly drops as the car depreciates. To avoid additional fees the owner can even transfer plates from their old car to a new one. Insurance rates depend on driving records as much or if not more than the age of the car, and since the car is paid for in full, the insurance rates would be lower than a car that has not been paid for (liability issues). When I bought a new car, my insurance only increased by $30 a month. True enough these cars will be expensive if they have to pay sales tax, but if not, I think some of the audience members can sell their junkers, and get some or most of the money they need to pay for their new wheels.