When Chevrolet prepared to give a brand new 2015 Chevy Colorado to New England Patriots quarterback Tom Brady for being Super Bowl XLIX MVP, Brady did the honorable thing and said he would give it to cornerback Malcolm Butler instead. After all, it was Butler who intercepted a pass on the goal line to secure the Patriots’ Super Bowl win. However, after considering the tax consequences of Brady giving away the vehicle himself, Chevy decided to give it directly to Butler instead, thus shifting the tax consequences to him.
You see, the IRS considers vehicles a taxable prize under the Internal Revenue Code, section 74. If Brady had received the vehicle and then given it to Butler, Brady would have had to pay $13,500 in income taxes just for receiving it (based on his 39.6 percent tax bracket). Brady would then have had to pay an additional $8,000 to cover the gift tax that the IRS charges when someone gives away items of value. The IRS allows individuals to give away money or property valued at $14,000 each year. If the item or monetary amount is higher than this and the giver must pay it. Now granted, money isn’t a problem for Tom Brady. Taxes in this case, however, would have been almost as much as a new vehicle. Since a new Chevy Colorado only costs $34,000, it begs the question of whether it’s worth it to go through the hassle of dealing with all of the IRS regulations related to gifting one. By giving the vehicle directly to Butler, the gift tax penalty was eliminated for Brady. Additionally, Butler is now the one who must pay income taxes on the vehicle.
It’s not the first time that this issue has arisen for Brady, a Super Bowl veteran. He also gave away the car he received for being the Super Bowl XXXVIII MVP to his high school, which raffled it off to raise money.
This story highlights the serious tax consequences that come with receiving a free gift, especially one valued at $35,000 like the Colorado in this story. While the average American won’t win a car, they do often give relatives property or money for down payments. This means that they are subject to the IRS’s gift tax and income tax regulations. However, there are ways to mitigate the tax implications of giving away high-value property or amounts. Those considering gifting large amounts should talk with a tax professional who can advise you on how to do it with the least amount of tax consequences.