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If You Win a Car, Do You Pay Taxes? Your 3 Options.
Winning a car through a contest, sweepstakes, or game show can be an exciting experience. However, before you celebrate your new ride, you should understand the financial responsibilities that come with it — particularly taxes.
While you won’t pay for the car upfront, the tax implications can catch many winners off guard. Let’s take a look at what happens when you win a car.
Understanding the tax implications of winning a car
It's considered taxable income by the federal government
According to the U.S. Tax Code, prizes and awards — including vehicles — are taxable. You must report the car's fair market value (FMV) on your federal tax return under "Other Income." The amount of tax you owe depends on your tax bracket, but in general, winners can expect to pay about one-third of the car's value in federal taxes.
For example, if you win a car worth $48,000, as estimated by Kelley Blue Book for the average price of a new car in 2024, you could owe approximately $16,000 in federal taxes. If you win a higher-value car — like a luxury vehicle worth $75,000 — you could face an even steeper tax bill, potentially pushing you into a higher tax bracket.
You may have additional obligations to your state
In addition to federal taxes, you may also owe state income taxes, which vary depending on where you live. Some states do not impose an income tax, but in states that do, the tax rate could range from 5% to 7% of the car’s value. You’ll also be responsible for the license and registration fees, which could exceed $1,000 depending on your state.
The fair market value matters
The taxes you owe are based on the car's fair market value (FMV), not necessarily the retail price provided by the game show or the contest organizer. Online resources like Kelley Blue Book and Edmunds.com can help you determine an accurate car valuation. If you prove the FMV is lower than the estimated prize value, you can reduce your tax liability.
Your options after winning a car
You have a few choices when it comes to taking care of the taxes on your prize:
1. Keep the car and pay the taxes
If the car meets your needs, you can keep it and pay the taxes owed. You’re still getting a brand-new vehicle for a fraction of the cost. Be sure to budget for registration, insurance, and ongoing maintenance.
2. Take the car, sell it, and pay the taxes
This approach lets you turn the prize into cash while walking away with a smaller windfall. Selling the car as soon as you get it could reduce your taxable amount if the actual sale price is lower than the game show or contest’s declared value.
3. Choose the cash alternative
Some contests offer a cash payout, often less than the car's estimated value. This payout might not be as exciting, but you can buy another vehicle with the money or use it however you want. Taking the cash option also makes it easier to cover the tax obligations without having to come up with extra funds.
You can still walk away a winner
Once the thrill of being given a new car fades, you’ll have to make some decisions. Whether you choose to keep, sell, or take a cash option, understanding your responsibilities can allow you to maximize your winnings without unnecessary financial stress.
If you haven’t won a car and need one, Credit Acceptance might be able to help. We work with over 12,000 dealerships nationwide, and you can start the pre-qualification process online.